GBP/USD retreated further from recent highs near 1.30 after hotter-than-expected U.S. June retail sales slightly dialed back expectations for Federal Reserve rate cuts. Despite the dip from 1.2970 to 1.2939, the shallow decline suggests that a move towards 1.30 remains possible. With U.S. retail sales having only a minor impact on bullish sterling sentiment, Wednesday's UK inflation data has gained significance. Reuters forecasts indicate a steady year-on-year print of 3.5% for UK core CPI and a slight dip in headline CPI to 1.9% year-on-year. If the data surprises to the downside, GBP/USD could drop due to a dovish shift in Bank of England rate expectations. Conversely, an unexpected rise in UK inflation could increase the likelihood of an eighth consecutive BoE rate hold next month, potentially pushing sterling above the 1.2995 resistance level and towards the late July 2023 high of 1.3041 and the 2023 high of 1.3144.

As the North American session closed, GBP/USD was slightly softer at -0.1%, trading at 1.2953, within a range of 1.2980 to 1.2939 for the day. Resistance remains intact ahead of 1.30, with the pair slipping from 1.2970 after the U.S. retail sales data beat expectations. The market's focus now shifts to Wednesday's UK CPI data for clues on BoE policy, with a month-on-month core CPI forecast of 0.1%. The diverging U.S.-UK rate outlook has supported GBP, but a soft CPI print may trigger a sell-off in long sterling positions, which have nearly doubled since late June.

Technical levels to watch include resistance at 1.2995 (July 15 high), 1.3041 (July 19, 2023 high), and 1.3144 (July 13, 2023 high). Support is found at Tuesday's low of 1.2939, the 23.6% Fibonacci retracement of the 1.2613-1.2995 move at 1.2905, and the rising 10-day moving average at 1.2858.

Open an account today to unlock the benefits of trading with CMS Financial

Open Account Now 💼