The GBP/USD pair faced challenges in seizing gains on Monday, hovering in a narrow range after rebounding modestly from the mid-1.2600s, near a one-month low. Currently, the pair finds itself below the critical 1.2700 mark, pressured by a strong US Dollar (USD) bolstered by recent hawkish signals from the Federal Reserve (Fed).
Last week, the USD Index (DXY), which measures the USD against a basket of currencies, surged to its highest level since early May following the Fed’s unexpected shift towards a less dovish stance. Fed officials, as indicated by their updated dot plot, now foresee only one interest rate hike in 2024, a downgrade from earlier projections. This development has buoyed US Treasury bond yields, reinforcing the USD’s position and dampening prospects for the GBP/USD pair.
Despite signs of easing inflation from weaker-than-expected US consumer and producer price data, alongside a decline in US import prices, concerns over domestic inflation persist. This, coupled with a sharp drop in US consumer sentiment for June, maintains expectations of potential Fed rate cuts later in the year, tempering the USD’s upward momentum and thereby supporting the GBP/USD downside.
On the British front, persistent inflation pressures may prompt the Bank of England (BoE) to prolong its current interest rate stance, deterring aggressive bearish positions on the British Pound (GBP) ahead of this week’s UK CPI report. Additionally, with the UK general election scheduled for July 4, market caution prevails regarding further GBP/USD depreciation.
In summary, while the USD remains bolstered by Fed policy outlooks, divergent economic signals between the US and UK economies continue to shape trading sentiment for the GBP/USD pair amid upcoming data releases and political developments in the UK.
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