GBP/USD Bullish Amid Labour’s Win in UK, Soft US Data – 1.284 Resistance Crucial

In the coming months, the new government is expected to maintain fiscal discipline and limit significant fiscal policy changes, as previously indicated during the election campaign.

This stance leaves the Bank of England poised to potentially initiate its interest rate cut cycle, possibly as soon as in the upcoming meeting.

Against this backdrop, let’s examine the current outlook for the GBP/USD to gain insight into the current trading opportunities.

Market expectations suggest a likelihood of dovish action at the next BoE meeting, driven by subdued inflation in the UK and a desire to bolster economic growth, which has recently dipped below 1% year-on-year.

This anticipated move is already factored into current market sentiments. Any additional strengthening of the British pound could prompt the Bank of England to signal readiness for a comprehensive rate adjustment cycle.

Meanwhile, recent data from the US labor market increased the probability of the first interest rate to 70% in September which is the main factor prompting the US dollar downtrend since.
Fed Rate Cut Expecations

Of utmost importance in this context will be the US inflation data scheduled for release this Thursday. Preliminary forecasts anticipate headline consumer inflation to decrease to 3.1% year-on-year, while core inflation is expected to remain unchanged at 3.4% year-on-year.US Economic Calendar

If the final data come in below current forecasts, it is likely that the depreciation of the US dollar will persist, with actual rate cuts in September becoming the baseline scenario.

The week will conclude with US PPI inflation data, complementing Thursday’s figures and providing further direction for dollar pairs in the short term.

The demand momentum observed since the beginning of the month has faced resistance from the supply side near the local peak around the price level of 1.2840.

The direction of correction will heavily hinge on Thursday’s US inflation data; any disappointing figures could bolster selling pressure, with the initial target near the local support zone around 1.2740.GBP/USD 300-Mins Chart

If growth continues and breaks through the current tested peaks, bulls may face challenges around 1.29, where the highest levels of the year are situated.

However, it’s important to note that medium and long-term movements will be shaped by upcoming actions of Central Banks, which will become clearer in the coming weeks.


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This article was originally published here.