The GBP/USD exchange rate maintained a firm footing in recent sessions, even as global financial markets reacted to softer-than-expected U.S. inflation data. The pair rose to a high of 1.3555, slightly below the year-to-date peak of 1.3616, highlighting persistent bullish sentiment in the face of shifting macroeconomic fundamentals.
However, technical indicators now signal potential bearish divergence, raising the probability of a pullback as a rising wedge pattern begins to materialize on the charts. Gradiopexo’s team of experts unpacks the details of this subject in their latest analysis.
U.S. Inflation Data and Dollar Weakness
The U.S. Consumer Price Index (CPI) for May revealed headline inflation at 2.4%, up slightly from April’s 2.3%, while the core CPI, which excludes volatile food and energy prices, held steady at 2.8%. Both prints were below market expectations, triggering a dip in the U.S. Dollar Index (DXY) as traders scaled back bets on further Federal Reserve tightening.
One contributing factor to these subdued figures could be the tariff-related inventory effects. Companies reportedly stocked up on goods ahead of the US President’s Liberation Day tariffs, resulting in excess supply and temporary downward pressure on prices.
As this inventory is gradually depleted, inflationary dynamics could shift, but for now, the market perceives this as a disinflationary signal.
Trade Truce and Market Sentiment
Sentiment also improved after U.S.-China trade talks ended with a temporary truce. China agreed to ease restrictions on rare earth exports, critical inputs for high-tech and defense industries, alleviating concerns over a prolonged trade conflict.
The de-escalation of hostilities has bolstered risk appetite across currency markets, leading to reduced demand for the safe-haven U.S. dollar and providing tailwinds for the British pound.
UK GDP and Rate Outlook
The next significant catalyst for GBP/USD will be today’s release of UK April GDP data, alongside industrial and manufacturing production figures. Consensus forecasts suggest that the UK economy contracted by 0.1% in April, down from 0.2% growth in March.
Meanwhile, both industrial production and manufacturing output are expected to show negative prints, reflecting sluggish domestic demand and reduced external orders amid global uncertainty.
If confirmed, these numbers could reinforce the Bank of England’s (BoE) dovish outlook, with analysts increasingly pricing in a potential interest rate cut at this month’s policy meeting. A rate cut would likely pressure the pound in the near term, particularly if accompanied by a downgraded economic forecast from the central bank.
GBP/USD Technical Analysis: Rising Wedge Signals Reversal
From a technical standpoint, the GBP/USD daily chart presents a compelling case for caution. The pair appears to be forming a rising wedge pattern, a classic bearish reversal structure characterized by converging ascending trendlines. Such patterns typically indicate weakening bullish momentum and often precede a downside breakout.
Further supporting the bearish case, both the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) indicators are showing bearish divergence. While GBP/USD prices have continued to grind higher, momentum indicators have been declining, suggesting that the underlying buying pressure is waning.
A confirmed break below the lower boundary of the wedge could initiate a drop towards the 50-day Exponential Moving Average (EMA), currently sitting at 1.3315. This level serves as a key support zone and a likely initial target for short-sellers. Conversely, a bullish breakout above 1.3616, the current year-to-date high, would invalidate the bearish setup and signal renewed upward momentum.
Market Implications
For forex traders, the evolving dynamics between macroeconomic fundamentals and technical patterns offer both risk and opportunity. The GBP/USD pair, currently influenced by a combination of central bank divergence, inflation trends, and geopolitical developments, remains at a crucial juncture.
A bearish breakdown would align with weaker UK economic data and increased probability of a BoE rate cut. Conversely, sustained dollar weakness, especially if confirmed by soft PPI and rising jobless claims, could offer further upside for the pound in the short term, particularly if the UK GDP contraction proves less severe than anticipated.
Conclusion
The GBP/USD forex signal is flashing caution as a rising wedge formation threatens to derail the current bullish trend. While fundamental drivers such as U.S. inflation, trade developments, and upcoming UK GDP data offer mixed cues, the technical landscape suggests that a reversal could be imminent. A drop below key support levels, especially the 50-day EMA, would likely confirm the bearish scenario.
