- GBP/USD is up for a third day in a row, moving to a more than two-month high.
- Expectations of a dovish Fed, sliding US bond yields and a positive risk tone undercut the USD.
- Technical buying above 100-day SMA is driving momentum ahead of FOMC minutes.
The GBP/USD pair continues to gain positive traction for a third consecutive day, climbing to a more than two-month high during the first half of trading on Tuesday. Spot prices maintain a bid tone around the 1.2530-1.2535 region until the start of the European session and appear poised to build on the uptrend following bearish sentiment around American dollar (AMERICAN DOLLAR).
In fact, the USD index (DXY), which tracks the greenback against a basket of currencies, is falling to its lowest level since Aug. 31 amid dovish Federal Reserve (Fed) expectations. Market participants now seem convinced that the US central bank has finished its policy-tightening campaign and are counting on the possibility of a series of rate cuts in 2024. This leads to a further decline in US government bond yields, which, with the positive tone around the stock markets, is seen as undermining the safe harbor and acting as a tailwind for the GBP/USD pair.
The British pound (GBP), on the other hand, draws support from the fact that Bank of England Governor (BoE) Andrew Bailey played down speculation about a possible rate cut. Bailey said at Monday’s event that it was too early to consider cutting rates and borrowing costs might have to rise again if there were signs that inflation was more persistent than expected. This is seen as another factor providing support to the GBP/USD pair, although bulls may refrain from aggressive betting ahead of key minutes from the FOMC meeting.
Investors will gain a new perspective Fed officials’ opinion on whether the US central bank should raise interest rates rates again. This will play a key role in influencing short-term USD price dynamics and provide new directional impetus to the GBP/USD pair. Nevertheless, spot prices now seem to have found acceptance above the 100-day simple moving average (SMA), which may have already set the stage for another short-term appreciation move.