Key Points:
- GBP/USD trading in the mid-1.2600s, the pair faces resistance above 1.2700, reflecting bearish sentiment.
- Near May highs due to the Fed’s hawkish stance and elevated US Treasury yields, pressuring GBP/USD.
- GBP/USD is under pressure from strong USD and mixed economic signals, with support from UK rate expectations and key data events.
The GBP/USD pair is experiencing challenges in capitalising on recent market movements, specifically Friday’s bounce. The pair is trading in the mid-1.2600s, hovering near a one-month low. This decline signifies a need for more momentum and highlights the difficulty in overcoming resistance levels.
The pair oscillated within a narrow band on the week’s first trading day, suggesting a lack of decisive movement. Notably, the GBP/USD pair is struggling to accept levels above the 1.2700 round-figure mark, reflecting a bearish sentiment driven by the bullish outlook for the US Dollar.
DXY Peaks Since May, Fed’s Stance Lifts GBP/USD
The USD Index (DXY) is trading near its highest level since early May, a peak touched on Friday. The Federal Reserve’s unexpected hawkish stance primarily drives this robust performance. The Fed’s recent dot plot projections now indicate only one interest rate cut in 2024, compared to three projected in March. This shift has elevated US Treasury yields, supporting the USD strongly. As a result, the US Dollar’s strength continues to exert downward pressure on the GBP/USD pair.
Weaker US Inflation, Fed Rate Cuts Expected Sept & Dec
Recent US inflation data has presented a mixed picture. Consumer, producer, and import prices have all become weaker than expected. Additionally, consumer sentiment has seen a sharp deterioration in June. Despite these factors, market expectations for Federal Reserve rate cuts remain firm. The first-rate cut is anticipated in September, followed by a second in December. These potential rate cuts could cap the USD’s gains and, in turn, limit losses for the GBP/USD pair.
UK CPI & July 4 Election Impact GBP/USD Market Sentiment
In the UK, the economic outlook is influenced by expectations surrounding the Bank of England‘s (BoE) interest rate decisions. Market consensus suggests that the BoE might maintain current rates for an extended period. This stance could prevent aggressive bearish bets on the GBP, supporting the currency. Additionally, upcoming events such as the UK Consumer Price Index (CPI) report, due this week, and the UK general election on July 4, add a layer of caution for traders before making significant positioning moves.
The GBP/USD pair remains under pressure due to the strong US Dollar and mixed economic signals. While upcoming UK events and BoE rate expectations may offer some support, the pair’s ability to regain strength hinges on broader market sentiment and economic data outcomes.
