GBP/USD Surges to Over One-Week High Amid USD Retracement and Positive Market Sentiment

The GBP/USD pair has enjoyed a remarkable upward trend, marking its third consecutive day of gains and reaching a one-week high. The ongoing retracement slide of the US Dollar (USD) from a two-week peak has acted as a favorable force for the pair. However, cautiousness is warranted for the bulls due to the diminishing likelihood of more aggressive rate hikes by the Bank of England (BoE).

During the Asian session, spot prices surged to over 1.2965 region, representing a modest increase of just over 0.20% for the day. The weakening trend of the US Dollar has been notable, as the Federal Reserve (Fed) seems to be approaching the end of its current policy tightening cycle. Although the Fed has indicated the possibility of one more rate hike in the coming months, the consensus remains that the central bank is approaching the conclusion of its tightening phase, causing the Greenback to decline for the third day in a row.

Fed Chair Jerome Powell’s recent remarks have also contributed to the USD’s decline. He emphasized that for inflation to return to the 2% target, the economy needs to slow down, and the labor market should weaken, implying that further moderation in inflation and weaker economic data could prompt the Fed to pause its rate hike trajectory. Additionally, a generally positive risk sentiment in the market has further weakened the safe-haven appeal of the US Dollar.

Investor confidence has been supported by China’s commitment to bolster its economy by focusing on expanding domestic demand, boosting confidence, and mitigating risks. This development has positively influenced global equity markets and contributed to the prevailing bullish sentiment.

However, the outlook for the British Pound (GBP) is not without its concerns. The odds of more aggressive rate hikes by the Bank of England (BoE) have diminished, reinforced by last week’s softer UK consumer inflation figures. As a result, this might act as a cap on the GBP’s performance, leading to caution among GBP/USD bulls. Market participants may hold back from placing fresh bets until the pair convincingly surpasses the psychological level of 1.3000, signaling that the corrective decline from a 15-month peak has run its course.

For now, the intraday movement of the GBP/USD pair will continue to be predominantly driven by the dynamics of the US Dollar, given the absence of any significant economic data from the UK. Traders will closely monitor the US economic docket later during the early North American session, which includes the release of the Advance Q2 GDP report, Durable Goods Orders, Weekly Initial Jobless Claims, and Pending Home Sales data. These indicators may provide further cues for the market and influence the direction of the GBP/USD pair.