GBP/USD rises amid expectations of Fed rate cut | 17 September 2024

Event to pay attention to today:

15:30 GMT+3. USD - Retail Sales

GBPUSD:

The GBP/USD pair reached a high on a relatively quiet Monday, marking the start of the new trading week with a renewed bullish sentiment and a move back towards 1.3200. Investor sentiment remains positive as markets anticipate significant central bank speeches this week, with a potential rate cut by the Federal Reserve and another Bank of England (BoE) speech widely expected.

The US retail sales figures are scheduled for release on Tuesday, but the key indicator, which typically causes some volatility, is not expected to have a significant impact this week unless the data deviates significantly from expectations. The month-on-month retail sales growth for August is forecast to decelerate to 0.2% from July's 1.0%, while the underlying month-on-month retail sales figure (excluding auto purchases) is expected to slow to 0.3% from 0.4%.

In the UK, the latest Consumer Price Index (CPI) data will be released at the start of Wednesday. It is anticipated that the annualised figure for August will remain at 2.2% year-on-year. As with US retail sales, the standalone figure is not expected to have a significant impact on the market as long as it falls within a reasonable range of average market forecasts.

Investors anticipate that the Federal Reserve will commence a new cycle of interest rate reductions on Wednesday. The key issue now is not when this will occur, but rather the extent of the cuts. CME's FedWatch tool indicates that traders anticipate a 60% probability of a 50 bp reduction in the federal funds rate, with the remaining 40% expecting a more modest 25 bp cut. Betting markets also estimate an overall rate cut of 125-150 bps by the end of the year, with traders believing there is about an 80% chance of the Fed funds rate reaching 400-425 bps by 18 December, compared to the current interest rate of 525-550.

The Bank of England will also issue its own rate statement on Thursday, but it is anticipated to be considerably less noteworthy than the Fed's statement. It is anticipated that the Bank of England will maintain its principal discount rate at 5.0% this week. Additionally, the Monetary Policy Committee (MPC) is expected to vote in favour of maintaining the rate at seven to two, in contrast to the previous Bank of England meeting where a vote was cast to cut the rate by a quarter point, resulting in a five to four outcome.

Trading recommendation: We follow the level of 1.3200, when fixing above it we take Buy positions, when rebounding we take Sell positions.

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