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With the US Dollar broadly extending its modest gains in the wake of the CPI report, GBP/USD is testing a critical support level - read on for the key areas to watch!
US CPI Key Points
- US CPI (June) came in at 0.3% m/m (2.7% y/y), with Core CPI also near expectations at 0.2% m/m (2.9% y/y).
- Fed watchers still expect the central bank to hold rates steady in July and possibly ease in September, depending on inflation and employment data.
- GBP/USD is falling for the eighth consecutive day and is on the verge of closing below bullish trend line support near 1.3400 after slicing through support at its 50-day EMA on Monday
With the much-anticipated Consumer Price Index (CPI) report, traders learned that prices in the US rose more than in recent months during June, prompting questions about whether President Trump’s new wave of tariffs began to make a tangible imprint on inflation.
According to the Bureau of Labor Statistics report, the Consumer Price Index (CPI) rose 0.3% month-over-month, the biggest increase since January. On an annual basis, inflation accelerated to 2.7%, up from 2.4% in May — the highest year-over-year reading since February.
Core CPI, which excludes volatile food and energy prices, increased 0.2% on the month, slightly below estimates, but still pushed the annual CPI rate to 2.9%, up from 2.8% in prior months. This marks the fifth straight month core inflation has come in softer than forecast on a monthly basis.
Despite these relatively muted core figures, the effects of tariffs were visible in certain categories. Household furnishings rose 1% — the most since January 2022 — and apparel climbed 0.4%. Toy prices, another tariff-sensitive item, surged 1.8%. However, these pressures were offset by falling prices for new and used vehicles, airfares, and lodging, contributing to a still-tempered inflation landscape.
Shelter costs, the largest component of CPI, rose 0.2% on the month and 3.8% year-over-year. Food prices rose 0.3%, while energy prices climbed 0.9%, driven by a 1% jump in gasoline.
As we noted in yesterday’s preview article, the positive “base effect” was always going to increase the year-over-year inflation reading this month, so markets mostly took the CPI report in stride, with the US dollar edging higher and stocks extending their recent gains.
Fed watchers still expect the central bank to hold rates steady in July and possibly ease in September. The key questions that will tilt the scales in September will be whether we see higher inflation readings in the coming months (especially from lagging tariff effects) or a deterioration in the remarkably resilient labor market.
US Dollar Technical Analysis With GBP/USD Chart
Source: StoneX, TradingView
With the US Dollar broadly extending its modest gains in the wake of the CPI report, GBP/USD is testing a critical support level. Cable is falling for the eighth consecutive day and is on the verge of closing below bullish trend line support near 1.3400 after slicing through support at its 50-day EMA yesterday. Meanwhile, the 14-day RSI has broken below its 6-month range, serving as a possible leading indicator for a breakdown in the exchange rate itself.
If trend line support and horizontal support in the 1.3400 area is conclusively broken, bears will look to press the pair down toward the Fibonacci retracements of the 2025 rally, starting with the 38.2% level below 1.3200. Meanwhile, bulls will be hoping for a late bounce to save the trend line and open the door for a recovery back into the mid-1.30s.