GBP/USD, USD/JPY Forecast: Two trades to watch

Fiona Cincotta
By :  ,  Senior Market Analyst

GBP/USD unchanged as the UK economic recovery stalls

  • UK GDP 0% MoM in April vs 0.4% in March
  • Weaker GDP supports a BoE rate cut in August
  • GBP/USD continues to trade within the 1.27- 1.28 range

GBP/USD is unchanged after data showed that the UK economy stalled in April with a GDP of just 0% compared to March, slowing from growth of 0.4% the previous month. However, this was better than the 0.1% contraction forecast.

The data suggests that the rebound from last year's recession could be losing momentum as high interest rates impede business and consumer growth. The UK economy remains fragile with signs of stagflation.

While this is bad news for Rishi Sunak as the election campaign ramps up, this print will have little bearing on the BoE. Going forward, weaker growth will likely lead to softer headline and service inflation, which could continue to pave the way for a rate cut in August.

Meanwhile, the US dollar is holding steady as investors look cautiously ahead to US inflation data and the Federal Reserve interest rate decision later today. Investors will be watching closely for clues over the timing of the first rate cut.

Get our exclusive guide to GBP/USD trading in Q2 2024

GBP/USD forecast – technical analysis

GBP/USD has risen from the 1.2687 low, retaking 1.27 and grinding towards 1.2750, but it remains in a range between 1.27 and 1.28. This looks unlikely to break out of range soon.

The long lower wicks on recent candles suggest little selling demand at the lower levels. Buyers will look to extend gains beyond 1.28 towards 1.2890, the 2024 high.

On the downside, a break below the 1.2690 – 1.27 zone could open the door to support at 1.2640 the 100 SMA.

gbp/usd forecast chart

USD/JPY rises ahead of CPI data & FOMC

  • US CPI is expected to be 3.4% YoY in May
  • FOMC could lower the dot plot
  • USD/JPY rises towards 157.70

USD/JPY is rising for a fourth straight day as investors prepare for inflation data and the Federal Reserve's interest rate decision later today.

Expectations are for the CPI to hold steady at 3.4% YoY in May, in line with April; however, the monthly data is expected to show a 0.1% rise compared to a month earlier.

Meanwhile, core inflation is expected to rise to 0.3% MoM. A hot print before the FOMC meeting could create some volatility.

The Fed is expected to leave interest rates unchanged at the 22-year high of 5.25 to 5.5%. As a result, attention will be on the statement, projections, and the dot plot, which could be revised lower to two rate cuts this year down from three. A downward revision to the dot plot combined with cautious commentary from Federal Reserve chair Jerome Powell regarding rate cuts could lift treasury yields and lend support to the US dollar.

The market is fully pricing in the first rate cut in December, having pushed this back from November after Friday's stronger than expected non-farm payroll.

USD/JPY forecast – technical analysis

USD/JPY rebounded off the 50 SMA and has been grinding higher towards 157.70, the late May high.

Buyers will look to push above this level to bring 158.00, the May high, into play ahead of 160.00

On the downside, support can be seen at 155.30, the 50 SMA. Below here, 153.60, the mid-May low comes into focus.

usd/jpy forecast chart

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