Daily Price Outlook
The GBP/USD currency pair continued a small upward movement from last night but is having difficulty gaining strong momentum. It's trading in a narrow range, staying below the mid-1.2700s level during the Asian session on Wednesday. However, the recent modest upward trend could be attributed to the bearish US dollar. The broad-based US dollar lost some strength as US bond yields decreased, and there's a slightly positive attitude towards riskier assets, which makes the safe-haven dollar less attractive.
Looking ahead, traders are being cautious about making big trades before the release of UK/US PMIs (Purchasing Managers' Index) and the Jackson Hole Symposium.
USD's Performance, Fed's Stance, and Market Caution Ahead of Jackson Hole Symposium
The broad-based US dollar, tracked by the USD Index (DXY) against various currencies, couldn't maintain its gains from Tuesday when it reached its highest level since July 12. This happened even though the US Treasury bond yields decreased slightly. Additionally, a positive outlook for US stock futures weakened the safe-haven appeal of the dollar and supported the GBP/USD pair (British pound against the US dollar).
The Federal Reserve is expected to stick with its plan of keeping interest rates higher for a longer period, which influences the dollar's performance. On top of that, concerns about China's worsening economic situation are also impacting the dollar. These factors combined are preventing the dollar from falling too much and are capping the gains for the GBP/USD pair.
Traders are also being cautious before the important Jackson Hole Symposium, where central banks' statements could bring significant market volatility. Because of this upcoming event, traders are holding back from making strong bets.
British Pound's Resilience and Upcoming Economic Data
Furthermore, the British Pound (GBP) is gaining added strength due to increasing expectations of more interest rate hikes by the Bank of England (BoE). Current market trends indicate a likelihood of over 80% for a 25 basis points increase during the upcoming BoE meeting in September. This growing confidence in rate hikes has been fueled by the recent news that wages in the UK experienced a notable increase in the second quarter, reaching a new record growth rate.
This development has raised concerns about potential long-term inflation, even following a sequence of 14 consecutive rate hikes that brought rates to a 15-year high in August. Besides, the positive UK GDP report and a slightly higher UK Consumer Price Index (CPI) reading further support the potential for the BoE to continue tightening its monetary policy.
Looking ahead, the release of the flash PMI numbers from the UK and the US on Wednesday will be closely observed for chances in short-term trading. These figures offer new perspectives on the overall economic well-being and whether the central banks can consider more interest rate hikes. This has a direct impact on the GBP/USD pair.
GBP/USD - Technical Analysis
The GBP/USD pair exhibited a downward rebound subsequent to reaching the 1.2800 barrier in the preceding sessions. This movement aimed to test the established support level just above 1.2725. It is worth noting that the price is currently consolidating above this level, complemented by distinct positive signals observed in the stochastic indicator.
Consequently, we maintain the view that there are viable opportunities for the anticipated bullish sentiment to resume in the intraday context. This projection targets the 1.2825 level as the subsequent key target. It is important to highlight that a breach of the 1.2725 level would invalidate the positive scenario, potentially prompting a resumption of downward movement.
The anticipated trading range for the day is expected to be confined between the support at 1.2680 and the resistance at 1.2830.
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