GBP/USD Surges to 2024 High Amid Market Speculation on Fed's Dovish Shift
The GBP/USD pair has climbed to a 2024 peak of 1.2975, driven higher despite the stronger-than-anticipated U.S. producer price inflation. The pair’s trajectory continues its gradual ascent towards the July 2023 highs above 1.30. The recent soft U.S. CPI data has shifted market sentiment towards dovish expectations for the Federal Reserve’s policy, propelling GBP/USD from its lows near 1.28 to an 11-1/2 month high of 1.2975. Should forthcoming U.S. economic data suggest continued declines in employment and a slower inflation rate, the sterling is likely to advance further towards the July 2023 high of 1.3144.
With the Federal Reserve’s policy stance now largely anticipated following the dip in both core and headline CPI, the pivotal elements for sterling bulls will be the economic data from the UK and the guidance from the Bank of England (BoE). Although there has been a rise in dovish sentiment towards the BoE, highlighted by a recent 7-2 vote to maintain rates and one vote to cut, the BoE’s June statement emphasized the persistently tight employment market. Recent wage data has supported this perspective, potentially postponing BoE rate cuts relative to the Fed, which could favor GBP bulls throughout the summer.
In afternoon trading in New York, GBP/USD remained firm at 1.2983, an increase of 0.52%, trading within a Friday range of 1.2991-1.2913. The pair reached a new one-year high as expectations for Fed rate cuts intensified following the CPI and University of Michigan data releases. Year-end 2024 rate projections indicate a divergence, with the Fed expected to cut by 62 basis points and the BoE by 49 basis points, bolstering sterling. The upcoming UK CPI and RPI data on July 17 will be critical for gaining insights into the BoE’s near-term policy direction.
Technically, GBP/USD finds support at the rising 21-hour moving average (HMA) of 1.2940, Friday’s low of 1.2913, and the 200-week moving average (WMA) at 1.2848. Resistance is identified at Friday’s high of 1.2991, the psychological 1.3000 level, and the July 19, 2023 high of 1.3041. Sterling bulls remain dominant as long as the pair maintains above the 50% Fibonacci retracement level of 1.2802, calculated from the 1.2613 low to the 1.2991 high.
