GBP/USD saw an impressive breakout on Monday, advancing 0.35% to regain territory above 1.3550. The Pound Sterling, nickname Cable, has been on the rise. That increase shows a strong reversal up overall as it approaches somewhat significant technical resistance just under the 1.3600 level. On tap that could affect the exchange rate’s fate are key U.S. inflation figures due out later this week. Such data would certainly help to greatly tilt the optimism among investors and guide future trading strategies.
The Pound Sterling is the name of the official currency of UK. It has the honor of being the oldest currency currently in circulation, dating back to 886 AD. This amount corresponds to about 12% of the total global transaction volume. In 2022, an average of $630 billion worth of transactions took place each day. GBP/USD trade constitutes approximately 11% of global foreign exchange (FX) trades. Traders and investors alike scrutinize its daily movements.
Technical Analysis and Market Indicators
With GBP/USD continuing to push higher, the 50-day Exponential Moving Average (EMA) is serving as key structural support for the currency pair. It is commonly used by traders to identify the direction of the prevailing market trend and possible price reversal areas. The recent move above 1.3550 indicates that traders are quite bullish in their outlook. Now traders are waiting to see if buyers can push the price above the resistance around the 1.3600.
The technical landscape hints at further upward mobility for the Pound Sterling, should it successfully navigate past this resistance level. Analysts are looking for that sustained momentum to set up their next trading opportunity. They caution that from the outside, particularly from U.S. economic data, a shock may come to change that trend dramatically.
Investors, meanwhile, are on a sparingly optimistic mood as they look for the release of important U.S. inflation data in a calendar week. We look for a modest deceleration in the core Producer Price Index (PPI). Projections have it falling to 3.5% y-o-y, from 3.7%. Similarly, traders hope that August’s headline Consumer Price Index (CPI) will rise only marginally to 2.9%, up from July’s reading of 2.7%. These expectations are in line with overarching market sentiment which is hoping for easing moves by Federal Reserve policy makers.
The Impact of U.S. Economic Data
The upcoming U.S. inflation data could significantly influence market dynamics surrounding GBP/USD. However, this week, there is a distinct lack of any influential UK economic data. Thus, at present, the U.S. docket is in the lead as the primary driver of currency volatility. The capital markets are on high alert with respect to these inflation metrics. They are eager to know how these numbers will affect the Feds’ next interest rate decision on September 17.
Market sentiment is definitely shifting today in favor of an interest rate cut at the Fed’s next meeting. So much of this speculation is based on the debate about whether current inflation trends will shape the direction of future monetary policy. If inflation begins to trend downward, those expecting lower interest rates may have reason to hope. This would make Pound Sterling relatively stronger still against the U.S. dollar.
If inflation rises more than anticipated, it would likely hurt investor sentiment. While this is an improvement, the change might lead to higher volatility in currency pairs like GBP/USD. As such, traders are advised to remain vigilant and prepared for potential market shifts based on the forthcoming economic indicators.
Broader Currency Landscape
In addition to GBP/USD, the Pound Sterling has several key trading pairs that are vital for market participants: GBP/JPY and EUR/GBP are among the most significant. These popular pairs all provide their own trading opportunities respectively and are driven by contrasting economic conditions that each region specifically faces.
French politics have drawn plenty of international attention in recent months. Consultants don’t think they’ll have much impact on Pound Sterling’s performance in the near term. The attention still centers around macroeconomic indicators and what these mean for monetary policy across the pond in the U.K., as well as here at home in the U.S.
GBP/USD quietly climbing into major technical resistance. As always, market participants are watching domestic and foreign developments that might affect trading strategy and tactics. Risk U.S. inflation data will be the primary influence behind interest rate hike/up expectations. Speculators are preparing for big moves in this venerable currency cross.