12 February 2024, GBP/USD
Event to watch out for today:
20:00 EET. GBP - BoE Governor Bailey Speech
GBPUSD:
During the Asian session on Monday, the GBP/USD pair received some buying interest. However, it failed to gain any follow-through and remains below the mid-1.2600s, which is the upper boundary of a multi-day trading range.
The US Dollar (USD) is still struggling to make significant gains due to uncertainty over the path of the Federal Reserve (Fed) rate cut. Furthermore, the bullish sentiment in global stock markets is considered to be another factor that weakens the safe-haven US Dollar and provides some support to the GBP/USD pair.
Meanwhile, market expectations for an early and sharp Fed rate cut in 2024 have decreased due to the resilient US economy and aggressive comments from FOMC officials. On Friday, Dallas Federal Reserve Bank President Laurie Logan stated that there is no immediate need to reduce rates and that she requires more inflation data to confirm the sustainability of progress.
Additionally, Atlanta Federal Reserve Bank President Raphael Bostic noted that inflation has been too high for an extended period and that there is still more to come. He also mentioned that the United States is on the path to pre-pandemic economic activity. This continues to favour US Treasury bond yields, which support the pound and prevent GBP/USD from rising significantly.
Moreover, increasing confidence that the Bank of England (BoE) may lower borrowing costs in the coming months is discouraging traders from making overly optimistic bets on the British Pound (GBP). Present market pricing indicates that the UK central bank could implement up to four 25 basis point (bps) interest rate cuts by the end of the year.
Therefore, it is advisable to wait for significant follow-through buying before taking positions for additional near-term GBP/USD strength. Traders may prefer to wait and see ahead of the release of important macroeconomic data this week, including the latest US and UK consumer inflation figures on Tuesday and Wednesday.
Trade recommendation: Trading in the price range 1.2600-1.2650
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