GBPUSD is moving in box pattern and market has rebounded from the support area of the pattern
GBP/USD Rises Amid Fed’s Expected Rate Cut and Geopolitical Tensions
Why GBP/USD Is Climbing
The GBP/USD currency pair has been on a rollercoaster ride recently, breaking a three-day losing streak and trading around 1.2700 during the Asian session on Thursday. But what’s driving this movement? Let’s dive into the factors at play, from the Federal Reserve’s anticipated rate cuts to Middle-East tensions and their impact on market sentiment.
Fed’s Rate Cut Anticipation
The major driver behind the recent appreciation of the GBP/USD pair is the widespread expectation of a more aggressive rate cut by the US Federal Reserve. The Fed is likely to implement a deeper rate cut in September, a move that has already started to weaken the US Dollar.
The Probability of a Significant Rate Cut
According to the CME FedWatch tool, there’s now a 72% chance of a 50-basis point interest rate cut by the Fed in September. This is a significant jump from just 11.8% a week earlier. This expectation of deeper rate cuts is putting pressure on the US Dollar, making it less attractive to investors.
Weak Employment Data Adding Fuel
Recent employment data from July has only added to the pressure on the USD. The US Nonfarm Payrolls (NFP) came in weaker than expected, raising concerns about a potential recession. On top of that, the US Unemployment Rate rose to its highest level since November 2021.
Fed Officials’ Views on Inflation
Federal Reserve Bank of San Francisco President Mary Daly recently expressed increased confidence that US inflation is moving toward the Fed’s 2% target. She mentioned that risks to the Fed’s mandates are becoming more balanced, hinting at the possibility of rate cuts in upcoming meetings. This dovish stance is further weighing down the US Dollar.
GBPUSD is breaking the higher low area of the Ascending channel
Geopolitical Tensions Impacting the Pound
While the Fed’s anticipated rate cut is boosting GBP/USD, geopolitical tensions are putting a lid on how high the GBP can go. Increased risk aversion linked to rising Middle-East tensions is causing traders to shy away from risk-sensitive currencies like the Pound Sterling.
Middle-East Tensions
Two US intelligence officials have indicated that Iran and its allies are preparing potential retaliation against Israel. This is in response to recent killings of key figures in Lebanon and Tehran. Such geopolitical uncertainties often lead investors to seek safe-haven currencies, thereby limiting the upside for the GBP.
Bank of England’s Stance
Another factor affecting GBP/USD is the market’s expectation regarding the Bank of England (BoE). There’s growing anticipation that the BoE might deliver a 25-basis point rate cut at its August meeting. Additionally, there’s speculation about the possibility of two more quarter-point rate cuts by December. These expectations are dampening the potential gains for the GBP.
Final Summary
In summary, the GBP/USD pair is experiencing a tug-of-war between the anticipated aggressive rate cuts by the US Federal Reserve and the geopolitical tensions in the Middle-East. While the Fed’s dovish stance and weak US employment data are driving the USD down and lifting GBP/USD, the rising geopolitical risks and potential rate cuts by the BoE are capping the upside for the GBP. As traders navigate through these complex dynamics, the currency pair’s movement will likely remain volatile. Keep an eye on the Fed’s next moves and any developments in the geopolitical landscape for clues on where GBP/USD might head next.
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