The GBP/USD pair traded with a token bid through the Asian session on Monday, a sign of fragility amongst traders. As of this writing, the British pound (GBP) is trading just under the 1.3360 level, bobbing up and down with minimal volatility during the overnight session. The forex market braced for possible volatility as a number of key economic data releases churned close on the July horizon. Expectations continue to build around a forthcoming rate cut from the Bank of England (BoE).
The GBP/USD currency pair is currently struggling. Yet, it’s missing the bearish conviction, indicating that traders are confused about its short-term trajectory. The pair is holding strong above the key long-term 200-day Simple Moving Average (SMA) support. While the economic picture remains uncertain, this position may provide much-needed continuity as those major developments continue to take place. Analysts do expect the GBP to face more selling against the current backdrop, especially as we get later into the week.
Economic Data Releases Impacting GBP
The market is bracing for a whole host of key economic releases that might materially alter the GBP’s path ahead. These semi-standardized reports would give us a much better sense of the British economy’s overall health and likely influence investor sentiment. Traders are on the lookout for data such as inflation rates, employment figures, and consumer spending. These elements are key to understanding the broader economic picture.
Market analysts expect that the next data points will result in considerable volatility shifting GBP / USD trading patterns. This is particularly true considering the current market appetite. The British pound is particularly responsive to changes in economic data, swinging on a dime. This vulnerability further compounds the uncertainty over its long-term performance.
Bank of England’s Interest Rate Decision
An important driver weighing on the GBP is the expectation of a 25bp cut to interest rates. This would retroactively lower the rates for everyone to 3.75%, introducing severe market uncertainty. This expected move stems from a desire to boost economic activity as we enter an era of increasing inflationary pressures, coupled with a deteriorating economy. Needless to say, such a move would make waves across the GBP/USD maximizing the pair’s impact.
Market participants understand this and will be listening intensely for any dovish signals from BoE officials leading up to this decision. Should the central bank proceed with the rate cut, it could further contribute to a bearish sentiment surrounding the British currency. On the flip side, if the BoE decides against a hike, that could strengthen confidence in GBP.
Future Outlook for GBP/USD
Regardless of how the week plays out, traders should be on their toes for anything that can move GBP/USD around. This interplay of anticipated Fed easing and uncertain economic data surprises will continue to influence the market. Analysts are still confident that GBP/USD might find support as long as it holds above the 200-day SMA. This position may insulate it from potential drops.