The GBP/USD pair started the week on a muted tone, trading near the 1.2635 area, maintaining proximity to its lowest levels since mid-May reached on Friday. Market sentiment suggests bears are eyeing a sustained breach below the 100-day Simple Moving Average (SMA) to extend the recent pullback from recent highs.
The British Pound (GBP) continues to face pressure following the Bank of England‘s (BoE) cautious stance last week, raising expectations of a potential interest rate cut at the upcoming August monetary policy meeting. Additionally, Friday’s release of UK flash PMIs revealed the slowest private sector business activity growth since November last year, further weighing on GBP sentiment. Concurrently, renewed US Dollar (USD) strength, driven by positive US economic data and a cautious market sentiment, has added downward pressure on the GBP/USD pair.
In contrast, the Federal Reserve’s unexpectedly hawkish stance earlier this month, projecting only one rate cut in the foreseeable future, buoyed the USD. Friday’s data indicating a 26-month high in US business activity has reinforced this sentiment. Despite these factors, the lack of sustained selling pressure suggests cautious optimism among bearish traders.
Market participants are closely monitoring expectations of potential Fed rate cuts in 2024, influenced by signs of easing inflationary pressures in the US. This dynamic could cap further USD appreciation, thereby limiting downside risks for the GBP/USD pair. Ahead of the UK general election on July 4 and with a lack of significant macroeconomic releases on Monday, traders are likely to refrain from aggressive positioning, anticipating clearer signals from upcoming events.
The GBP/USD pair remains under scrutiny amid evolving central bank policies and economic indicators, shaping market sentiment and directional biases in the near term.
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