GBP/USD climbs as US CPI miss fuels Fed rate cut bets

• GBP/USD rises as May US CPI rose 2.4% YoY vs. 2.5% expected.
• Traders eye Thursday's US PPI to confirm easing inflation trend.
• UK fiscal outlook dims as £2T budget adds to Gilt market pressure.

GBP/USD advances on Wednesday during the North American session, boosted by a weaker-than-expected consumer inflation report in the United States (US), which increased speculation that the Federal Reserve (Fed) may reduce borrowing costs twice in 2025. At the time of writing, the pair trades at 1.3537, up 0.34%.

Cable extends gains above 1.35 after soft US inflation print raises expectations for two Fed cuts in 2025

The Consumer Price Index (CPI) in May rose less than estimates. Headline figures increased by 2.4% YoY, up from 2.3% a month ago but below forecasts for a 2.5% rise. Core CPI - which excludes volatile items like food and energy - advanced 2.8% YoY, unchanged compared with April's data.

Although the data warrants further easing by the Fed, the latest ISM Purchasing Managers Index (PMI) surveys showed that companies reported higher input prices. Hence, traders are eyeing the release of the Producer Price Index (PPI) on Thursday.

According to Bloomberg, "The string of below-forecast inflation readings adds to evidence that consumers have yet to feel the pinch of President Donald Trump's tariffs."

In the UK, the Chancellor of the Exchequer, Rachel Reeves, unveiled a £2 trillion budget, which she said "would put Britain on a path to national renewal," according to the Financial Times. Public spending for the following years will be primarily focused on health, education, and capital projects.

Analysts remained concerned about the UK's weak fiscal position, which drove the UK's 30-year Gilts to their highest level in the G7 economies. In addition, an expected slowdown in the economy would most likely drive interest rates lower, which could be mitigated by a large fiscal stimulus package.

Ahead in the week, the US economic docket will feature PPI and Initial Jobless Claims on Thursday. In the UK, the Bank of England (BoE) is projected to keep rates on hold next week.

GBP/USD Price Forecast: Technical outlook

From a technical standpoint, the GBP/USD seems to have bottomed near 1.3450 for the last two days, and has risen past the 20-day Simple Moving Average (SMA) of 1.3515, an indication that buyers are in charge.

If GBP/USD clears 1.3600, look for a test of the yearly high at 1.3616 and 1.3700. Conversely, the first support would be the 20-day SMA and the 1.35 mark. Sellers are dragging prices below that level and looking for a test of the May 29 daily low of 1.3412.