The GBP/USD pair experienced a modest uplift during the Asian trading session on Monday, reaching a three-day high near the 1.2470 region. Despite this uptick, the pair still trades beneath the critical 100-day SMA near the psychologically significant 1.2500 level, below last week’s two-month high.
The US Dollar remains subdued, hovering at lows not seen since early September, providing a supportive backdrop for Sterling’s rise. Last week’s US CPI and PPI data, signaling a potential end to soaring inflation, have set market expectations for the Federal Reserve to pause rate hikes in December, thereby exerting downward pressure on the USD.
Market sentiment is now leaning towards a potential rate cut by the Fed in early 2024, aiming for a soft economic landing, as reflected by the dip in 10-year US Treasury yields to a two-month low. Moreover, upbeat vibes from Asian equities are diminishing the allure of the USD as a safe haven, further buoying GBP/USD.
Conversely, the market has advanced its expectations for the Bank of England to cut rates amid intensifying recession risks, supported by the UK’s weak retail sales data. This cautious outlook may cap Sterling’s gains.
Technically, the pair’s recent rebound from near the 1.2500 threshold and 100-day SMA suggests caution is warranted before taking new bullish positions. With no significant economic data from the UK or US to guide the markets, USD price action will remain a key influencer for the GBP/USD trajectory, offering short-term trading opportunities.
The GBP/USD is projected to maintain its bullish bias provided it sustains above the 1.2460 – 1.2430 support zone, with the EMA50 offering underlying support. The immediate trading range is expected between 1.2400 support and 1.2560 resistance, with a bullish trend anticipated for the day.