GBP/USD pulls back to the mid-1.3100s, awaiting FOMC meetings | 16 September 2024

GBPUSD:

The GBP/USD pair is attracting some dip buying on the first day of the new week, despite relatively weak trading conditions due to holidays in China and Japan. Spot prices are currently trading at 1.3135-1.3140, representing a 0.10% increase on the day and remaining near the weekly high reached on Friday, amidst a prevailing US dollar (USD) selling bias.

Analysts anticipate that the US central bank will reduce borrowing costs by 50 basis points later this week, following the release of data last week that further indicates a decline in US inflation. This maintains US Treasury yields at 2024 lows, placing US dollar bulls in a defensive position.

Furthermore, the prevailing positive sentiment towards risk factors serves to erode the USD's status as a safe haven. Conversely, the British pound is benefiting from expectations that the Bank of England will adopt a less accommodating monetary policy than the Federal Reserve over the next year. Nevertheless, market participants continue to anticipate a further reduction in Bank of England interest rates, particularly in light of the recent data which indicated a deceleration in UK wage growth and a stagnation in GDP for the second consecutive month in July. This could dissuade those with a bullish outlook on the GBP/USD pair from taking an aggressive stance.

Investors may also choose to adopt a more cautious approach ahead of key central bank events scheduled for this week. The Federal Reserve is scheduled to announce its decision following its two-day meeting on Wednesday. This will be followed by the Bank of England meeting on Thursday, which will play a key role in determining the next stage of directional movement for the GBP/USD pair. Nevertheless, the fundamental backdrop favours the USD bears and supports the prospects of the pair's continued rebound from the psychological mark of 1.3000, or the multi-week low reached last Wednesday.

Trading recommendation: We follow the level of 1.3150, when fixing above it we take Buy positions, when rebounding we take Sell positions.

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