The Pound Sterling has seen an increase in value against the US Dollar as bets supporting a rate cut by the Bank of England (BoE) have decreased. The slower than expected decline in consumer inflation in the UK for April has contributed to this trend. Despite this, economic indicators such as Retail Sales and the preliminary PMI report for May suggest that the UK economy is struggling to absorb the effects of higher BoE interest rates.
In a thin-volume trading session due to holidays in both the UK and US markets, the GBP/USD pair remains firm. The US Dollar is under pressure as bets for Federal Reserve rate cuts in September have decreased, with the probability now at 49%. Market speculation on Fed rate cuts has eased due to a strong US economic outlook and policymakers’ hawkish guidance on interest rates. The Fed is less convinced that the slowdown in inflation in April will persist, given the strength of the US labor market.
Technical analysis shows that the Pound Sterling is trading close to a two-month high around 1.2760. The outlook is bullish, with the pair likely to extend its upside above the weekly high. The Cable has established a firm footing above the 61.8% Fibonacci retracement level, indicating a strong uptrend. All short-to-long-term Exponential Moving Averages are sloping higher, suggesting continued bullish momentum.
The Core CPI for the UK is a key economic indicator to measure inflation and changes in purchasing trends. The YoY reading is a measure of consumer price inflation produced to international standards, comparing prices in the reference month to a year earlier. A high reading is typically seen as bullish for the Pound Sterling, while a low reading is considered bearish. This data will be important in determining future market movements for the GBP/USD pair.
Overall, the Pound Sterling has been performing well against the US Dollar, with market sentiment shifting as bets on a BoE rate cut decrease and economic indicators suggest ongoing challenges for the UK economy. The US Dollar is under pressure due to reduced expectations of Fed interest rate cuts in September, with a strong US economic outlook and labor market supporting this trend. Technical analysis indicates a bullish outlook for the GBP/USD pair, with potential for further upside in the near term. Further data releases, such as the Core CPI for the UK, will likely impact market movements in the coming days.
