• Britain’s economy contracted less than anticipated in May.

• The Bank of England will likely implement further interest rate hikes in early August.

• US data revealed a more significant deceleration in inflation compared to expectations.

Today’s GBP/USD outlook is bullish. Britain’s economy contracted less than anticipated in May, despite disruptions caused by a bank holiday for King Charles’ coronation and strikes. Therefore, the widely predicted recession, attributed to high inflation and increasing interest rates, has not yet taken hold. 

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The Office for National Statistics reported a 0.1% decline in economic output from April, following a 0.2% growth in the previous month. Economists surveyed by Reuters had expected a 0.3% contraction in May. With the exception of the services sector, all areas of the economy experienced contraction without any growth. Consequently, the pound saw a slight increase against the dollar following the release of this data.

However, business groups acknowledged that the overall economic landscape remained subdued. At the same time, persistent inflationary pressures indicate that the Bank of England will likely implement further interest rate hikes in early August.

Meanwhile, the weakening dollar faced additional strain. Traders interpreted the softer US inflation as an indication that interest rate hikes in the US would come to a near halt by the end of the month.

Data from the United States on Wednesday revealed a more significant deceleration in inflation compared to expectations. This led to the largest single-day dollar sell-off in five months. Furthermore, the currency hit its lowest point against the euro and sterling in over a year.

GBP/USD key events today

The US will release its weekly employment report and the Producer Price Index report. The initial jobless claims will give a recent picture of the labor market, while the PPI will show inflation at the producer level.

GBP/USD technical outlook: Bears could resurface at 1.3051

On the charts. GBP/USD continues to climb, making new highs in the process. Bulls have quite a strong hold on the current move because the price barely pauses at resistance levels. Moreover, it trades well above the 30-SMA with the RSI in the overbought region. Therefore, the bullish bias is strong. 

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However, we might see bears resurface with the RSI in the overbought region and the price at the 1.3051 resistance. This would likely lead to a short pause or pullback before the uptrend continues.

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