Key Insights
- GBP/USD is trading near a three-week high of 1.2820, having broken above the 78.6% Fibonacci retracement level at 1.2770.
- The pair is positioned above both the 20-day and 50-day EMAs (1.2695 and 1.2675), indicating a strong short to medium-term uptrend.
- The 14-day RSI has climbed above 60.00, suggesting strengthening bullish momentum.
GBP/USD Fundamental Analysis
The Pound Sterling (GBP) is exhibiting a mixed performance against major peers in Monday’s London session, with its near-term outlook remaining firm due to recent political developments. The Labour Party, led by Keir Starmer, has secured an outright majority against Rishi Sunak’s Conservative Party in the UK parliamentary elections. This victory has ushered in a new era of political stability, consequently bolstering UK financial markets and providing support for the Sterling.
Despite this positive political backdrop, uncertainty continues to linger over the Bank of England’s (BoE) interest rate outlook. Although annual headline inflation has returned to the desired 2% target, financial markets are still divided on the BoE’s next move. Currently, there’s a 50% probability priced in for the central bank to begin reducing interest rates as early as the August meeting.
Looking ahead, market participants will be closely monitoring the UK’s monthly Gross Domestic Product (GDP) and factory data for May, set to be released on Thursday. Economists anticipate a modest expansion of 0.2% in the economy, following a stagnant April.
Meanwhile, the GBP/USD pair is holding gains near the 1.2800 level, benefiting from a weakening US Dollar in the wake of the latest Nonfarm Payrolls (NFP) report. The June NFP data pointed to moderating labor market conditions, with downward revisions to April and May figures and an unexpected rise in the unemployment rate to 4.1%.
These signs of a loosening labor market have fueled expectations of earlier rate cuts by the Federal Reserve (Fed). According to the CME FedWatch tool, the probability of a September rate cut has surged to 75.8%, up from 64% just a week ago. Furthermore, the market is pricing in subsequent rate cuts in either November or December.
As we move through the week, attention will shift to the US Consumer Price Index (CPI) data for June, scheduled for release on Thursday. Economists project the annual core CPI to remain steady at 3.4%, a figure that could significantly influence Fed policy expectations and, by extension, the GBP/USD pair’s trajectory.
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GBP/USD Technical Analysis
From a technical perspective, the Pound Sterling is trading near a fresh three-week high of 1.2820 against the US Dollar. The GBP/USD pair has successfully breached the 78.6% Fibonacci retracement level at 1.2770, drawn from the March 8 high of 1.2900 to the April 22 low at 1.2300. This break above a key Fibonacci level suggests strong bullish momentum.
Further reinforcing the bullish outlook, the pair is trading above both the 20-day and 50-day Exponential Moving Averages (EMAs), situated near 1.2695 and 1.2675 respectively. This positioning above crucial moving averages typically indicates a robust short to medium-term uptrend.
The 14-day Relative Strength Index (RSI) has climbed above the 60.00 threshold, a move that often signals strengthening bullish momentum. A sustained position above this level could potentially trigger a more significant upside move in the coming sessions.