GBP/USD hits four-week highs, anticipating policy divergence between BoE and Fed

• GBP/USD bounces off weekly lows and hits a four-week high at 1.2590.
• Swap market prices suggest a further 100 basis point hike by the Bank of England.
• UK labor market data, GDP figures and the US Fed’s policy meeting will be released next week.

He GBP/USD it hit a fresh four-week high of 1.2590 on Friday. However, it fell towards the 1.2570 zone after the weaker than estimated Canadian jobs report cemented the possibility of a Federal Reserve jump at the next monetary policy meeting. GBP/USD is trading at 1.2576, up 0.14%, and poised to end the week with gains of over 1%.

Positive market sentiment and expected central bank actions support GBP

Market sentiment is bullish and putting pressure on safe-haven pairs, which means the US Dollar (USD) is trading lower. This, along with central bank divergence between the US Federal Reserve (Fed) and Bank of England (BoE), favors the British Pound (GBP), with GBP/USD rebounding from weekly lows of 1.2368.

Next week, Fed Chairman Jerome Powell and his colleagues will reveal their fourth decision on monetary policy. The Fed is expected to keep rates at 5.00%-5.25% unchanged from the May meeting, as policymakers would like to see the impact of 500 basis points of tightening from March 2022. However, recent hawkish moves by two major central banks, which interrupted their tightening cycles, open the door for a possible rise.

The International Monetary Fund (IMF) urged the Fed and other global central banks to “stay the course” in tightening monetary policy as they fight to moderate inflation.

Apart from this, the UK dodged a recession predicted by the Bank of England (BoE), but continues to battle stubbornly high inflation that peaked at 11.1% in October last year. Since then, it has fallen back to 8.7%, prompting the BoE to raise rates above comfortable levels.

This supports GBP/USD, which is set to test the 1.2600 level, as swap markets are currently pricing in the BoE raising rates in the UK to 5.50%, 100 basis points (bps) per month. above current levels.

upcoming events

Next week, the UK economic calendar will feature data on the labor market and gross domestic product (GDP). On the other hand, the monetary policy meeting of the Federal Reserve (Fed), the Consumer Price Index (CPI) and Retail sales will update the situation of the US economy.

GBP/USD Price Analysis: Technical Insights

Against the fundamental background, GBP/USD maintains its bullish bias, ready to test 1.2600, as the uptrend accelerates, as the latest uptrend line drawn from the May 30 lows shows. If GBP/USD breaks above 1.2600, the May 11 high will become next resistance at 1.2641, before hitting a 12-month high of 1.2680. A break above will expose 1.2700. Conversely, GBP/USD’s first support would be the June 2 high at 1.2544 before dipping towards a broken trend line resistance and the 1.2500 figure confluence.