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GBP/USD recovers above 1.2700 amid speculation about Fed easing cycle and dollar weakness

  • GBP/USD experiences a significant rally, rising 0.70% above 1.2700.
  • Federal Reserve Chair Jerome Powell’s comments on tight monetary policy and high underlying inflation fail to support the US dollar.
  • Market futures now anticipate more than 130 basis points of rate cuts by the Fed in 2023, causing US Treasury yields to fall.

He GBP/USD rose more than 90 points late in the North American session on Friday, growing 0.70%, after reaching a daily low of 1.2609. Speculation that the Federal Reserve has ended its tightening cycle prompted a more than 100 basis point cut by the Fed next year, a headwind for the dollar. The pair is trading at 1.2711.

British Pound Advances Against Dollar, Buoyed by Market Expectations of Federal Reserve Rate Cuts and Dovish Signals

The main reason for the advance of GBP/USD is the weakening of the Dollar. Even though US Federal Reserve Chairman Jerome Powell opposed rate cut expectations, he was unable to move the needle and boost the US Dollar, which as measured by the Dollar Index, fell 0.38%, to 103.12.

Powell said that monetary policy is “well into restrictive territory”, which was seen as a green light for investors, who, seeing the risk, turned to high-level currencies such as the British pound (GBP). At the same time, Wall Street matched its losses and soared late in the session. Although he acknowledged that inflation is subsiding, he said underlying prices remain “too high.”

Money market futures put the federal funds rate (FFR) around 4.11% by the end of next year, implying more than 130 basis points of rate cuts. Consequently, US Treasury yields plummeted, cutting more than ten basis points each, to 4.56% and 4.22%, respectively.

Regarding the data, US manufacturing activity chained thirteen consecutive months of declines and remained in recessionary territory, with 46.7, unchanged compared to October but below forecasts, which pointed to an improvement of 47.6.

On the other side of the Atlantic, the S&P Global manufacturing PMI improved, although it remained in recessionary territory. On the contrary, those responsible for the Bank of England (BoE) maintained a hardline stance. Margaret Greene stated that she sees signs of persistent inflation, as she said that the “underlying” inflation of services, excluding energy prices, stands at 6%, which could prevent the BoE from debating cuts. of rates.

GBP/USD Price Analysis: Technical Insights

On Friday, GBP/USD’s rise above 1.2700 formed a bullish engulfing candlestick pattern, implying that the bulls are in control. However, to consolidate their position, they must overcome the August 30 high of 1.2746 to threaten to challenge the 1.2800 level. In that case, the pair would have broken two resistance levels, which could pave the way towards 1.3000. On the other hand, if the pair stagnates and achieves a daily close below 1.2700, the pair could consolidate within the 1.2600/1.2740 range.

GBP/USD

Overview
Latest price today 1.2711
Today Daily Change 0.0087
Today’s daily variation 0.69
Today’s daily opening 1.2624
Trends
daily SMA20 1.2457
daily SMA50 1.2289
SMA100 daily 1.2486
SMA200 daily 1.2468
Levels
Previous daily high 1.2711
Previous daily low 1.2604
Previous weekly high 1.2616
Previous weekly low 1.2446
Previous Monthly High 1.2733
Previous monthly low 1.2096
Daily Fibonacci 38.2 1.2644
Fibonacci 61.8% daily 1,267
Daily Pivot Point S1 1.2581
Daily Pivot Point S2 1.2539
Daily Pivot Point S3 1.2474
Daily Pivot Point R1 1.2688
Daily Pivot Point R2 1.2753
Daily Pivot Point R3 1.2796

Source: Fx Street

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