Key Insights
- GBP/USD approaches 1.3000, supported by expectations of Fed rate cuts and UK political stability
- US Dollar finds some support near 104.00 following Trump assassination attempt
- Key UK inflation and employment data this week could influence BoE policy expectations
GBP/USD Fundamental Outlook
The Pound Sterling (GBP) is showing resilience against the US Dollar (USD), hovering just below the psychologically important 1.3000 level as the week begins in London. This strength comes amidst growing expectations that the Federal Reserve will initiate interest rate cuts as soon as September, despite higher-than-expected US Producer Price Index (PPI) data released on Friday.
The market’s conviction in potential Fed rate cuts was bolstered by Thursday’s US Consumer Price Index (CPI) report, which indicated a resumption of the disinflation process after a pause in the first quarter. Both headline and core inflation showed deceleration, while visible cracks in the labor market further fueled rate cut expectations.
However, the US Dollar Index (DXY) is finding some support near 104.00, buoyed by a flight to safety following an assassination attempt on former US President Donald Trump. This event has increased the perceived odds of a Trump victory in the upcoming US Presidential elections.
On the UK front, the Pound is benefiting from several factors. Unlike the EU and US, the UK political landscape appears more stable following the projected victory of Keir Starmer’s Labour Party. Additionally, uncertainty surrounding the Bank of England’s (BoE) rate cut timeline is supporting Sterling strength. While markets anticipate rate cuts from August, BoE policymakers remain cautious due to high service sector inflation driven by strong wage growth.
This week, key UK economic data releases – inflation on Wednesday and employment figures on Thursday – could provide more clarity on the BoE’s policy direction. Core CPI is expected to show a slight deceleration to 3.4% from May’s 3.5%, while Average Earnings Including Bonus for the three months to May are forecast to soften to 5.7% from the previous 5.9%.
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GBP/USD Technical Analysis
Turning to the technical analysis, GBP/USD reached a fresh annual high at 1.3000 on Friday, breaking above the significant March 8 high near 1.2900. This breakthrough suggests potential for further upside, with the next major target being the two-year high around 1.3140.
The pair’s bullish momentum is evident in the upward slope of all short-to-long-term Exponential Moving Averages (EMAs). Furthermore, the 14-day Relative Strength Index (RSI) has surged to nearly 70.00, a level not seen in over a year, indicating strong upward momentum.
