During the European session, the GBP/USD forecast remains bullish as the cable looks to stay above the 1.20 psychological mark.
The pair closed the week below 1.20 but started the last week of July with an upside momentum.
At the time of writing, the pair is trading at 1.20399.
One of the main reasons for the pair’s bullishness is the tumbling DXY.
The DXY steadied at 106.650 on Monday, just below a two-decade high made in mid-July at 109.290, and analysts don’t see much in the way of hurdles to the dollar ahead.
That assumption was supported by statistics released on Friday, which revealed that business activity in the US fell for the first time in over two years this month, activity in the Eurozone fell for the first time in over a year, and growth in the UK fell to a 17-month low.
So far, the dollar has been supported by the Fed’s divergence from most of its G10 rivals, geopolitical tensions, and risk aversion return among investors.
On the other hand, market speculation over a probable US recession may momentarily impair the dollar’s rising trajectory.
Fed in charge
To combat rising inflation, the Federal Reserve is set to hike interest rates again on Wednesday, July 27.
Several Fed officials are leaning toward raising interest rates by three-quarters of a percentage point, as they did in June, for the fourth time in five months.
UK retail sales fell again
The Queen’s Jubilee weekend was insufficient to prevent the cost of living problem from driving down retail sales in the UK.
The GDP figures came in at -5.8 percent below the consensus of -5.3 percent and 4.7 percent below the previous publication. It is worth mentioning that rising energy costs are already driving up retail sales.
Later, the UK S&P Global PMIs for July remained above the expansionary zone, relieving some of the strain on the Bank of England (BoE).
Geopolitical tensions soar
Geopolitical tensions are also high, with Europe’s development reliant on Russian gas, and China has issued strong warnings against US House Speaker Nancy Pelosi’s planned visit to Taiwan.
In other news
Following Boris Johnson’s departure earlier this month, the previous three weeks have seen a diverse range of contenders from inside the party compete for the position of leader, with eight candidates declared on July 12.
Over the weekend, British Foreign Secretary Liz Truss and former finance minister Rishi Sunak stated their intentions to become Britain’s next prime minister.
GBP/USD key events to watch
Today, we don’t have any significant events on the UK docket. Then, we have the Chicago Fed National Activity Index across the pond.
Next week, a lack of UK economic data would force GBP/USD traders to rely on the US calendar. The Federal Reserve Open Market Committee (FOMC) monetary policy decision, US inflation data, and the advance reading of Q2 GDP are all important events to watch for.
The risk-off mood and the political situation in the UK may put negative pressure on the GBP/USD. However, the cable may be able to recover some of its recent losses due to a lack of major events today.