The GBP/USD currency pair is on an upward trajectory, achieving its highest level in 20 months as it ascends for the fifth consecutive day. This rally can be attributed to a mix of economic conditions that have adversely affected the US Dollar (USD) while simultaneously bolstering the British Pound (GBP). The prevailing stance of the Bank of England (BoE) appears to be more hawkish, which is a notable factor in the pound’s strength.
During the Asian trading session on Wednesday, the GBP/USD reached approximately 1.3430, marking a significant peak not seen since March 2022. Analysts indicate that the primary trend is upward, although current overbought conditions on the daily chart suggest that traders should exercise caution and be prepared for potential corrections.
Support for the British Pound stems largely from the belief that the BoE will reduce interest rates at a slower pace compared to the US Federal Reserve. Recent comments from BoE officials highlight a gradual approach to rate cuts, with the assertion that rates are unlikely to revert to extremely low levels without substantial economic disruptions. Meanwhile, markets have factored in expectations for more pronounced easing by the Fed, which continues to exert downward pressure on the USD, further supporting the GBP/USD outlook.
Market expectations indicate that there is a significant probability of a 50 basis point rate cut by the Fed in November, particularly following recent underwhelming US economic data. Additionally, the current risk-on sentiment has weakened the demand for the safe-haven dollar, validating the positive momentum for the GBP/USD pair. However, the daily Relative Strength Index (RSI) nearing 70 suggests the possibility of a temporary pullback or consolidation.
Looking ahead, there appears to be a lack of impactful economic data from the UK on Wednesday. Still, comments from BoE MPC Member Megan Greene could sway the pound’s performance. Additionally, US New Home Sales figures slated for release in the early North American session may create short-term trading opportunities. Nonetheless, traders might opt for caution ahead of significant speeches from Federal Reserve officials later in the week, including the Fed Chair.
