UK payrolls saw an upward revision, reducing pressure on the Bank of England as inflation persists. In the US, Fed Governor Waller supports a July rate cut, while President Goolsbee remains wary of inflation due to tariffs. US consumer sentiment improved with the index rising to 61.8, and inflation expectations for the next five years were adjusted down to 3.6%.
During the North American session, GBP/USD increased by 0.21%, with the pair trading at 1.3442 following a low of 1.3406. Limited economic data in the UK noted an improved jobs report, with May’s payroll figures revised from -109K to -25K, reducing concerns over a weak labour market. This offers some relief to the Bank of England as inflation continues above 3%.
Future Outlook For The UK And US Economy
Looking ahead, the UK will present S&P Global Flash PMIs and Retail Sales data next week. In the US, focus will be on housing data, Flash PMIs, and Durable Goods Orders. Technically, GBP/USD trades with a modest bullish tone, and surpassing the 50-day Simple Moving Average at 1.3506 could lead to further gains. If it falls below 1.3400, the next support would be at 1.3369.
We believe the divergence between central bank policies presents an opportunity in the coming weeks. While his colleague expressed caution, Mr. Waller’s support for a rate cut aligns with recent US inflation data, which cooled to 3.3% in May. This potential for easing in the United States could weaken the dollar and push the currency pair higher.
In the United Kingdom, the situation is more complex, creating potential for volatility around key data. While payrolls showed improvement, the most recent official data shows headline inflation has now fallen to the central bank’s 2% target. This, combined with a surprise 2.9% jump in May retail sales, gives policymakers conflicting signals and may lead them to hold rates steady.
Investment Strategy Using Options
We suggest using options to trade this outlook, as upcoming reports on both sides of the Atlantic could trigger sharp movements. Buying call options with a strike price above the current 1.3442 level, perhaps targeting the 1.3506 resistance, would allow traders to profit from a rise while capping potential losses. This strategy is particularly relevant ahead of next week’s purchasing managers’ indexes.
Historically, this currency pair sees increased volatility around major economic data releases and central bank policy changes. For instance, the pair saw significant movement following the surprise UK election announcement in May. Using derivatives allows for a defined-risk approach to capture a potential breakout without being fully exposed to unexpected news.
