Home Forex GBP/USD trades with slight upside bias just below 1.2700, lacks bullish conviction

GBP/USD trades with slight upside bias just below 1.2700, lacks bullish conviction

by SuperiorInvest


  • GBP/USD is up for the second day in a row and continues to recover from monthly lows.
  • Wednesday’s warmer UK CPI dashed hopes of an early BoE rate cut and supported the GBP.
  • Reduced bets on more aggressive Fed easing act as a tailwind for the USD and should limit gains.

The GBP/USD the pair attracted some buyers for the second day in a row on Wednesday and looks set to build on the previous day’s good bounce from levels below 1.2600 or above the one-month low. Spot prices are currently trading just below the round figure of 1.2700 and remain well supported by reduced bets on an early interest rate cut by the Bank of England (BoE).

The British Office for National Statistics (ONS) said on Wednesday that the consumer Price index (CPI) rose for the first time in 10 months to 4.0% in December from a more than two-year low of 3.9% the previous month. Added to that, the core gauge, which excludes volatile food, energy, alcohol and tobacco prices, was unchanged at 5.1% in December, compared with an expected decline to 4.9%. Markets reacted quickly and now see a roughly 60% chance of the BoE cutting rates by mid-May, up from 80% late on Tuesday, which in turn is seen as underpinning the British pound. (GBP).

The American dollar (USD), on the other hand, edged down amid profit-taking after a recent run to its highest level since December 13, proving to be another factor acting as a tailwind for the GBP/USD pair. However, investors continued to lower their expectations for a March interest rate cut by the Federal Reserve System (Fed) following the release of upbeat US retail sales data on Wednesday. This continues to support elevated US Treasury yields, which should help limit any significant decline in the USD and deter traders from placing aggressive bullish bets around the currency pair.

Meanwhile, speculation that the Fed will keep rates higher for an extended period, along with geopolitical risks and China’s economic problems continue to weigh on investor sentiment. This is evident in the generally weaker tone in equity markets, which could further benefit from the dollar’s relatively safe position against its UK counterpart. It will therefore be prudent to wait for strong follow-on buying before confirming that the GBP/USD pair has formed a short-term bottom and positioned for further upside in the absence of any relevant market economic news from the UK. .

Later in the early North American session, traders will take cues from the US economic report – including the usual weekly initial jobless claims, the Philly Fed Manufacturing Index, building permits and housing starts. In addition, the scheduled speech by Atlanta Fed President Raphael Bostic and US bond yields will affect USD price dynamics, providing some impetus to the GBP/USD pair.

Technical levels to watch

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