GBPUSD almost hits a new 1 year high after US CPI release

• GBPUSD is now almost trading at a 1 year high
   
• US CPI slowdown fuels potential Fed rate cuts
   
• UK GDP growth boosts GBP
   
• Investors split on August BoE interest rate cut

GBPUSD has reached above key 1.28932  target level and is now almost trading at a 1 year high following the lower-than-expected US CPI reading and a higher-than-expected GDP for the UK.
 

US CPI for May:

• Core MoM inflation: 0.1% (vs 1.2% – expected)
   
• Core MoM inflation: 3.3% (vs 3.4% – expected)
   
• Headline inflation MoM: -0.1% (vs 0.1% – expected)
   
• Headline inflation YoY: 3.0% (vs 3.1% – expected)
   

A slowdown in inflation may give the Fed an ability to start cutting interest rates sooner. This could potentially result in GBPUSD moving higher.

The implied probability of an interest rate cut in the following September now stands at 91.8% (77.2% – yesterday, July 11; source: CME FedWatch Tool).

Today's UK GDP release

Today morning, GBPUSD has also strengthen following the higher-than-expected UK GDP reading (MoM), posted this morning.

The British economy grew by 0.4% in May 2024 driven by the retail, wholesale, and construction sectors. Services sector grew by 0.3%, driven by retail trade and professional activities.

Industrial production rose by 0.2%, led by manufacturing. Construction output increased by 1.9%.

An uptick in GDP comes along the newly elected Labour government’s agenda to provide a “modest boost to demand growth in the near term”.

Further economic growth may strengthen the GBP and potentially delay interest rate cuts by the BoE.

Currently, investors are almost evenly split on the likelihood of an interest rate cut this month (source: Bloomberg).

• 51.5% probability of a rate cut for August
   
• 37.8% probability of a rate cut for September
   
• 62.4% probability of a rate cut for November