Key Points:
- GBP/USD shows a slight recovery to 1.2460 from Friday’s low of 1.2426.
- US Dollar Index at 106.00, buoyed by high Treasury yields.
- Fed may keep rates steady in June; 63.5% probability.
- Bank of England holds the rate at 5.25%, which might reduce it to 4.75% by end-2024.
The GBP/USD pair is trading at 1.2460 during the Asian hours on Monday, slightly recovering from its recent low of 1.2426 recorded last Friday. This movement reflects ongoing fluctuations in the currency market, primarily influenced by the stability of the US Dollar. Although it remains robust, it is still below its peak since November 2023. The US Dollar’s strength is partly attributed to the geopolitical tensions in the Middle East, prompting traders to lean towards the safety of the USD amidst global uncertainty.
Dollar Index Stable at 106; Treasury Yields Influence
The US Dollar Index (DXY) stands at 106.00, supported significantly by the elevated US Treasury yields, which play a crucial role in the currency’s valuation. Specifically, the yields on the 2-year and 10-year US Treasury notes are reported at 4.91% and 4.55%, respectively. These yields suggest market anticipation of sustained strong economic measures and possibly tighter monetary policies by the US Federal Reserve.
Fed’s Rate Decision: 63.5% Chance of No Change
The Federal Reserve is currently reevaluating its stance on monetary easing, driven by persistent inflation and robust macroeconomic indicators. The probability of maintaining the current interest rates into the upcoming June meeting has increased to 63.5% from last week’s 46.8%. This shift underscores the Fed’s cautious approach in navigating economic stability. Furthermore, the financial community is keenly anticipating insights from Lorie Logan’s participation in the upcoming BoJ-IMF panel discussion, which could provide deeper clues into future policy directions.
GBP/USD: BoE Holds Rate, Eyes Cut to 4.75%
Across the Atlantic, the Bank of England holds its interest rate steady at 5.25%. Consequently, forecasts suggest a potential decrease to 4.75% by the end of 2024. This projection adjusts from a previously anticipated 4.5%, indicating a slower trajectory towards easing. Comments from policymakers, including Megan Greene, underscore the concerns over distant rate cuts because of the persistent inflation risk. This reflects a cautious optimism within the Bank’s strategy, especially amid global fiscal pressures.
GBP/USD Key US Economic Reports to Drive Currency Volatility
The financial markets are bracing for further volatility with upcoming economic reports, such as the US retail sales data set for release in the North American session on Monday. These reports will provide critical insights into consumer behaviour and economic health, key indicators for future monetary policy decisions. As global economic events continue to unfold, the interplay between US and UK monetary policies will be crucial in shaping the landscape of international finance and currency markets.
