GBPUSD has formed higher lows and slightly higher highs, creating a rising wedge pattern visible on its daily chart. Price is currently testing the resistance and might be due for a move back to support soon. Stochastic looks ready to head south from the overbought zone so selling pressure could pick up soon.
However, the 100 SMA is above the longer-term 200 SMA so the path of least resistance is still to the upside. This suggests that the wedge support at the 1.2750-1.2800 levels could keep losses in check or that the pair could attempt to break past the resistance at 1.3100.
UK economic data has been weaker than expected so far this week, with headline and core CPI reflecting much weaker inflationary pressures. This reduces the need for the BOE to hike interest rates to keep price levels in check.
The retail sales report is due next and another decline could reinforce the view that spending and growth are taking hits from rising inflation. Consumer spending already fell 1.2% in May and another drop could mean more losses for the pound, but analysts are expecting to see a 0.4% rebound.
As for the US dollar, delays in the Trump administration’s fiscal reform plans are dampening demand for the currency. After all, this could push tax cuts much later into next year and limit growth prospects, lessening the need for the Fed to hike as they start their balance sheet runoff.