GBP/USD rises as UK inflation cools, BoE rate cut bets increase

• UK inflation drops to 2.6% YoY in March, missing BoE projections and reinforcing 86% odds of May rate cut.
• Strong US retail sales masked by weak control group; DXY plunges to 99.44 amid risk-off mood.
• GBP/USD could extend gains unless Powell delivers a hawkish surprise in his upcoming remarks.

The British Pound advanced during the North American session, posting soft gains of 0.14% against the Greenback as inflation slowed to its weakest level in three months. This adds to pressure on the Bank of England to reduce interest rates. At the time of writing, the GBP/USD trades at 1.3248 after hitting a daily peak of 1.3291.

GBP/USD up as softer CPI fuels May rate cut expectations; focus shifts to Powell speech

Inflation in the UK dipped from 2.8% in February to 2.6% YoY in March, below estimates of 2.7% and projections of the Bank of England (BoE). In February, the BoE expected prices to rise to 3.6% in April, expecting tariffs and household utility bills would go up.

Money market players had priced in an 86% chance that the BoE would cut the Bank Rate 25 basis points (bps) on May 8.

Across the pond, US Retail Sales in March rose, underpinned by car sales, as revealed by the Commerce Department. Sales expanded by 1.4% MoM, up from estimates of 1.3% and crushed February's 0.2% figure. Although the numbers were positive, the control group, used to calculate Gross Domestic Product (GDP), rose by just 0.4%, down from 1.3% in the prior month and missing forecasts of 0.6%.

In the meantime, Sino-US trade tensions keep the market mood sour, as Wall Street posts losses while the buck continues to drop. The US Dollar Index (DXY), which tracks the performance of the American currency against a basket of six other currencies, falls 0.66% to 99.44.

Given the backdrop, the GBP/USD is set to continue to trend up, but a speech of Fed Chair Jerome Powell at 17:30 GMT could shift the direction. If Powell turns hawkish, expect further downside on the pair, which could pave the way to test the 1.3200 figure.

GBP/USD Price Forecast: Technical outlook

The GBP/USD remains upward biased, but as of writing, has retreated from yearly peaks, an indication that buyers are not finding acceptance of prices near 1.33. A daily close above 1.3250 could pave the way to test the former. Otherwise, the pair could dip and challenge the 1.32 figure. If surpassed, the next support will be the April 15 swing low of 1.3163.