The GBP/USD pair regained its positive momentum in early Wednesday trading, rising to a new daily high near the 1.3100 level.
However, spot prices remain below the pair’s daily peak, warranting some caution before confirming a substantial recovery from the three-week low around the 1.3050-1.3045 region, which prices touched yesterday.
In my view, this recent rise in the pound against the dollar demonstrates some strength amid the weakening U.S. dollar. However, there are still many reservations about the sustainability of this trend, given the mixed data from both sides.
It’s essential to monitor the 1.3050-1.3045 support levels, as this area could be key to determining short-term price direction.
The U.S. dollar also halted its positive trend from the past three days and retreated from its monthly highs. This was due to market expectations of the Federal Reserve starting a monetary easing cycle in September. These expectations temporarily supported the GBP/USD pair, but the weaker tone in global equity markets helped limit the dollar’s losses.
I believe that while the expectations of U.S. rate cuts provide some support for the dollar, they are not enough to create significant stability. Markets are waiting for more explicit moves from the Federal Reserve, and other economic and geopolitical factors, particularly related to inflation and the labour market, will play a decisive role in the coming period.
UK unemployment data released recently showed an increase of 23.7K in August, compared to 102.3K in the previous month, and much lower than the expected 95.5 K. The unemployment rate was also expected to drop to 4.1% from 4.2%. Nevertheless, the slowdown in UK wage growth is seen as a positive factor for inflation, which could give the Bank of England more confidence in cutting interest rates.
In my opinion, the slight rise in the unemployment rate and the slowdown in wage growth are mixed signals. However, their impact remains positive regarding inflation control. From a fundamental analytical perspective, this could ease the pressure on the Bank of England to hasten its decisions regarding interest rates.
Traders are also likely to refrain from placing large bullish bets on the pound before the release of key data, such as the UK GDP reading and the latest U.S. inflation numbers. The U.S. Consumer Price Index (CPI) report will play a crucial role in guiding expectations for the Federal Reserve’s rate-cut path. Consequently, any surprises in this data could fuel market volatility and move the GBP/USD pair sharply.
In my view, U.S. economic data is a pivotal factor in shaping future market expectations. If U.S. inflation figures come in lower than expected, the dollar could weaken further, strengthening the pound. Conversely, positive data could push the dollar higher again.
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