Key Insights
- GBP/USD nears four-week high, supported by expectations of Fed rate cuts and UK political stability.
- Key US CPI data and UK GDP figures upcoming, potentially influencing currency pair’s direction.
- Technical analysis shows an Inverted Head and Shoulders pattern, with bullish indicators pointing to a possible breakout.
Fundamental Outlook
The Pound Sterling has been gaining ground against the US Dollar, reaching a near four-week high of 1.2850 in recent trading. This upward momentum is largely fueled by growing expectations that the Federal Reserve will initiate interest rate cuts as early as September. Despite Fed Chair Jerome Powell’s cautious stance during his Congressional testimony, where he emphasized the need for sustained evidence of inflation returning to the 2% target, market sentiment remains tilted towards a potential policy shift.
Interestingly, Powell’s acknowledgment that the US economy is no longer overheated and that labor market conditions have cooled to pre-pandemic levels has further bolstered expectations of a rate cut. This subtle shift in tone has not gone unnoticed by market participants, who are now eagerly awaiting the release of the US Consumer Price Index (CPI) report for June. The upcoming data will be crucial in shaping expectations, with analysts anticipating a deceleration in annual headline inflation to 3.1% from May’s 3.3%.
Meanwhile, the Pound Sterling is benefiting from a confluence of positive factors. The recent electoral victory of the Labour Party under Keir Starmer has injected a sense of political stability into the UK economy, providing a tailwind for the currency. Additionally, hawkish comments from Bank of England policymaker Jonathan Haskel have deepened uncertainty around the BoE’s rate-cut trajectory. Haskel’s resistance to an August rate cut, citing persistent inflationary pressures in the labor market, has challenged market expectations of imminent policy easing.
GBPUSD Technical Analysis
The GBP/USD pair is currently testing the key psychological level of 1.2800, with bulls eyeing a potential breakout of an Inverted Head and Shoulders formation on the daily timeframe. This classic bullish reversal pattern has its neckline situated near the 1.2850 level, coinciding with the recent four-week high.
Supporting the bullish case, the 20-day Exponential Moving Average (EMA) is trending upwards and currently sits around 1.2730, indicating a positive short-term momentum. Furthermore, the Relative Strength Index (RSI) has entered the bullish territory between 60 and 80, suggesting growing buying pressure.
A successful breach of the neckline at 1.2850 could trigger a significant upward move, potentially opening the door for further gains.
However, traders should remain vigilant and monitor upcoming economic data, particularly the UK’s monthly GDP and industrial production figures due on Thursday, which could influence the pair’s near-term direction.
