GBP/USD falls below 1.3400 as US inflation reignites Dollar rally

• US CPI rises to 2.7% YoY, first meaningful jump in five months.
• Core inflation sticks at 2.9%, reinforcing Fed's cautious stance.
• UK growth concerns deepen as BoE rate cut bets rise to two by year-end.

The GBP/USD extended its losses to four consecutive days after the latest inflation report in the United States (US) showed signs of rising, the first indication that tariffs triggered a jump in prices. At the time of writing, the pair trades below 1.3400, down by 0.23%.

Sterling extends losing streak to four days after hot US CPI fuels Fed hold bets and BoE cut expectations

The US Bureau of Labor Statistics (BLS) revealed that the Consumer Price Index (CPI) for June increased the most in five months, rose by 2.7% YoY, exceeding estimates of 2.6% and May's 2.4% rise. Excluding volatile items like food and energy, the so-called core CPI increased by 2.9% YoY, up from 2.8% achieved in three straight months but below forecasts of 3%.

The data further reinforced the Federal Reserve's stance to hold rates unchanged at least for the July meeting. Traders are still pricing in over 43 basis points of easing toward the year's end, according to data from the Chicago Board of Trade (CBOT).

The US Dollar Index (DXY), which tracks the value of the Dollar against six major currencies, is up 0.46% at 98.55. US Treasury yields are also up, with the 10-year note yielding 4.475% nearly four basis points up.

Across the pond, the UK economic docket is scarce. Nevertheless, last week's UK GDP report revealed that the economy unexpectedly contracted for the second consecutive month, exerting pressure on the Bank of England (BoE) to deliver interest rate cuts towards the end of the year.

Money markets show traders expect two rate cuts to the Bank Rate, from 4.25% to 3.75%.

Economic calendar

The US economic docket will feature the Producer Price Index (PPI) and Retail Sales data. In the UK, the calendar will feature CPI for June, which is expected to remain unchanged, with headline inflation at 3.4% and core CPI at 3.5%.

GBP/USD Price Forecast: Technical outlook

In the near term, the GBP/USD is neutral to downward biased as the pair aims to challenge the first support, seen at 1.3369, the June 23 cycle low. If breached, the next support is 1.3300, followed by the 100-day SMA at 1.3263.

The Relative Strength Index (RSI) indicates that sellers have continued to gain momentum, suggesting further downside is expected.

For a bullish continuation, the GBP/USD must climb past the 50-day SMA at 1.3495.