The pound has broken above the resistance level of 1.3560 (the upper line of the Bollinger Bands on the H4 timeframe), reacting positively to reports on the labor market and inflation. Although not all components of the releases were in the "green zone," the overall fundamental picture is favorable for the British currency. Meanwhile, the dollar faced pressure from its own macroeconomic reports. This combination of fundamental factors allows the GBP/USD pair to hold near three-month price highs, reflecting the dominance of bullish sentiment.
The unemployment rate in the UK for April to June remained at 4.9%, while most analysts had predicted a decrease to 4.8%. However, the quarterly dynamics were somewhat better, with the indicator decreasing by 0.1 percentage point. At the same time, the employment rate for those aged 16-64 rose to 75.1%, increasing by 0.1 p.p. quarter-on-quarter. Economic inactivity changed little, remaining at 20.9%. The number of new unemployment benefit claims has been in negative territory for the second month in a row, with June showing -6,400 and July at -11,000 (whereas most experts predicted an increase of 16,500).
Notably, wage dynamics should also be highlighted. Regular wages increased by 3.5% year-on-year, while total wage growth (including bonuses, etc.) slowed to 4.1% (down from the previous 4.3%). The real growth of regular wages was 0.7%, while the real growth of total compensation was 1.3%. On the one hand, wage growth is gradually slowing. On the other hand, real incomes continue to rise. Moreover, the real growth of regular wages has accelerated after a prolonged period of slowing.
In other words, inflationary pressure from the labor market is gradually easing, while consumers' purchasing power remains resilient. This combination allows the Bank of England to avoid rushing to lower interest rates, as a noticeable deterioration in consumer demand does not yet accompany the cooling labor market.
Overall, Tuesday's release cannot be defined as strong in the traditional sense of the word. However, GBP/USD traders interpreted it positively for the pound, as the British economy still shows the ability to create jobs, the unemployment rate is stable, economic inactivity is virtually unchanged, the number of unemployment benefit claims is decreasing, and real wages are again showing positive dynamics.
This is precisely why Wednesday's UK inflation report holds such significance for GBP/USD traders.
Thus, the overall consumer price index (CPI) rose by 2.9% year-on-year in July, following a decline to 2.6% the previous month. This represents the highest rate of overall inflation growth in the past four months and the first acceleration in the CPI since March of this year. Month-on-month, prices increased by 0.3% (after a growth of 0.1% in June).
The main source of inflationary pressure has come from housing and utility services. Their annual growth rate sharply accelerated—from 2.7% to 4.1%. A key factor in this increase was gas prices, which rose by 14.7% year-on-year in July. Additionally, electricity prices increased by 3.6%, whereas a year earlier they were declining. In other words, a significant part of the acceleration in inflation in July can be attributed to the revision of the energy price cap, which led to a sharp rise in bills for British households.
However, if the CPI acceleration were entirely linked to a single factor, and core inflation components continued to decline steadily, the central bank might have chosen to ignore the inflation spike in July. But the acceleration was broad enough for the BoE to dismiss it as merely a temporary effect.
The structure of the core CPI indicates that goods inflation rose to 2.2% (up from 1.7%). Notably, furniture and household goods saw their prices switch from a decline (by 0.2%) to a significant increase—up by 1.0%. Even categories like clothing and footwear, which typically see price declines in July, showed higher annual inflation, rising by 0.5% after a similar decline the previous month.
Overall, the report indicates that the CPI has started to move away from the BoE's 2% target, while the core index remains "defensively" at 2.6%, contrary to forecasts of a gradual decline. The energy factor has the capacity to continue exerting pressure on prices, given the ongoing tensions in the Middle East.
Naturally, the upward dynamics of GBP/USD are due less to the strengthening of the pound than to the weakening of the dollar, which is losing ground amid declining hawkish expectations regarding the Federal Reserve's future actions. Key macroeconomic reports (NFP, CPI, PPI, Retail Sales) have exerted significant pressure on the dollar, including against the British currency. The aforementioned British releases have only strengthened GBP/USD buyers' positions, allowing them to push the three-month price high.
All of this indicates that the pair retains potential for further growth, especially since on all higher timeframes (from H4 and above), GBP/USD is situated between the middle and upper lines of the Bollinger Bands indicator and above the Ichimoku lines, which have formed a bullish "Parade of Lines" signal on the D1 chart. The nearest target for upward movement is the level of 1.3630, which corresponds to the upper line of the Bollinger Bands on the daily chart.