UK CPI is expected to tick up, endorsing BoE hawks' positions  

• The United Kingdom's Office for National Statistics will publish the July CPI data on Wednesday.
• Inflation, as measured by the CPI, is forecast to rise further above the BoE's goal in July.
• The GBP/USD is going through a mild bearish correction ahead of the release.

The United Kingdom (UK) June Consumer Price Index (CPI) is scheduled for release on Wednesday at 06:00 GMT. The report, released by the Office for National Statistics (ONS), is closely watched amid the potential impact of inflation data on the Bank of England (BoE) monetary policy decisions.

Inflation in the UK, as measured by the CPI, is forecast to have contracted by 0.1% in July, although the annual figure is seen accelerating to 3.7% from 3.6% in June and 3.4% in May. The core CPI, on the other hand, is expected to have grown at an annual 3.7% rate, unchanged from the previous month. 

What to expect from the next UK inflation report?

Consumer prices have been accelerating steadily over the last 11 months after bottoming with a 1.7% yearly inflation in September. Headline inflation is seen reaching its highest level in nearly two years, if the market consensus is met, pushing the yearly CPI to levels nearly twice the Bank of England's (BoE) 2% target for price stability.

The BoE cut rates by 25 basis points to 4% in a dramatic meeting on August 7, which needed two rounds of voting for the first time in its 300 years of history, with some policymakers showing concerns about rising inflationary pressure. In this context, and with the bank's forecasts pointing to a 4% yearly inflation in September, these numbers will only strengthen the hawks' side, casting doubt about further rate cuts.

Later data have provided further reasons for a more hawkish policy stance. Preliminary Gross Domestic Product showed above-expectations growth in the second quarter, and unemployment claimants declined against expectations, which points to a resilient economy and strengthens the case for a more hawkish BoE stance.

Down to the GBP/USD pair, ING analyst Chris Turner sees UK inflation figures likely to support the Pound: "Some sticky UK inflation for July looks unlikely to alter the market's view of the BoE over the coming days. This should keep GBP/USD bid this week, where a break of 1.3585/3600 could see 1.3680/3700 by the end of the week."

How will the UK Consumer Price Index report affect GBP/USD?

Against this background, the risk is of a higher-than-expected UK CPI reading that would practically discard any further BoE rate cut in the coming months. This would highlight a positive monetary divergence with the Federal Reserve (Fed), which is expected to ease its monetary policy in September, and underpin demand for the Sterling.

A soft inflation reading, on the contrary, would keep hopes of at least one rate cut in 2025 alive, which might help the pair to extend its current corrective reaction.

The GBP/USD has been pulling back from multi-week highs heading into the CPI release, in a mild bearish correction after having rallied nearly 3% from August 1 lows. A combination of strong UK data and downbeat US figures, which have boosted expectations for Fed easing, fuelled Cable's uptrend.

Pablo Piovano, senior analyst at FXStreet, sees the pair likely to resume its broader bullish trend in the near-term: "GBP/USD is expected to meet its next up barrier at its August top at 1.3594 (August 14). The surpassing of that level would pave the way for Cable to confront the weekly peak at 1.3588 (July 24), ahead of its 2025 ceiling at 1.3788 (July 1).

On the downside, Piovano points to the support area at 1.3385: "There is an interim support at the 100-day SMA at 1.3386, seconded by the August base of 1.3141 (August 1), which is closely followed by the May floor at 1.3139 (May 12). A breach below the latter would shift focus to the psychological 1.3000 threshold.