15 Juli 2024, GBP/USD
Event to pay attention to today:
19:30 GMT+3. USD - Federal Reserve Chairman Jerome Powell Speaks
GBPUSD:
The GBP/USD pair saw some selling activity during the Asian session on Monday, resulting in a three-day winning streak reaching its highest point since July 2023 at 1.3000. Spot prices are currently trading at 1.2965, representing a slight decline of 0.15% on the day. This is occurring against a backdrop of modest US dollar (USD) strength, although any meaningful move to the downside seems unlikely.
The criticism of US presidential candidate Donald Trump on Sunday increased political uncertainty and prompted safe haven flows, allowing the US dollar to recover some of Friday's decline to more than three-month lows. Nonetheless, the expectation that the Federal Reserve will soon commence its rate cut cycle is likely to persist, acting as a headwind for the dollar and providing support for GBP/USD.
CME Group's FedWatch tool indicates that there is a 90%+ probability that the Federal Reserve will cut borrowing costs by 25 basis points in September. Furthermore, market expectations have shifted towards the possibility of another interest rate cut in December, following the release of softer-than-anticipated US consumer inflation data last week. This could dissuade traders from placing new bullish bets on the US dollar.
In contrast, the British Pound (GBP) is benefiting from the diminished likelihood of a Bank of England (BoE) rate cut in August, particularly in light of data released last week indicating that the UK economy expanded at a faster-than-anticipated 0.4% in May. This in turn prompts some caution before confirming that GBP/USD may have formed a short-term top and is positioned for a significant fall.
The market is now awaiting the release of the US manufacturing sector business activity index from Empire State. However, the focus will remain on the speech by Fed Chairman Jerome Powell, which, along with US Treasury bond yields and broader risk sentiment, will have an impact on the USD exchange rate. Nevertheless, the aforementioned fundamental backdrop supports the prospects for some dip-buying in GBP/USD.
Trading recommendation: Trading predominantly Buy orders from the current price level.
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