GBP/USD Continues to Soar: Can the Bullish Run Persist?

The GBP/USD pair is on an impressive streak, notching its sixth consecutive day of gains and reaching a nearly three-week high during the Asian trading session. With the spot prices hovering just below the key 1.2300 round-figure mark, it’s evident that the US Dollar (USD) is feeling the heat, facing a persistent bearish trend.

The recent series of dovish comments from various Federal Reserve (Fed) officials has prompted investors to dial down their expectations of aggressive monetary tightening by the US central bank. This trend has exerted downward pressure on US Treasury bond yields, eroding the strength of the Greenback. In particular, Atlanta Fed President Raphael Bostic emphasized that further interest rate hikes are unnecessary and that there’s no impending recession.

Moreover, the prevailing risk-on sentiment has added to the USD’s woes while bolstering the GBP/USD pair. Despite escalating geopolitical tensions in the Middle East, the decreasing likelihood of more rate hikes by the Fed has encouraged investors to seek higher returns in riskier assets. This has fostered a positive market tone, evidenced by gains in the equity markets, thereby diverting investments away from traditional safe-haven currencies, including the US Dollar.

Nonetheless, it’s important to note that the markets are still pricing in the possibility of at least one more Fed rate hike before year-end. This factor tempers the enthusiasm for aggressive bearish USD positions. Furthermore, expectations that the Bank of England (BoE) will keep rates unchanged in November might act as a ceiling on the GBP/USD pair. The BoE unexpectedly paused its rate-hiking cycle in September and provided little indication of its future rate intentions.

As the GBP/USD pair extends its recent recovery from the 1.2035 region, which marked its lowest point since March, traders are advised to await strong follow-through buying before considering an extension of the bullish run. Market participants are eagerly awaiting the release of the US Producer Price Index (PPI) and the FOMC meeting minutes, which are expected to provide substantial market-moving insights during the North American session. Attention will then shift to Thursday’s unveiling of the latest US consumer inflation data, which could offer further clarity on the currency pair’s future trajectory.