GBP/USD Price Analysis – July 01, 2024
Daily Price Outlook
During the European trading session, the GBP/USD currency pair maintained its upward trend, remaining well bid around the 1.2673 level and hitting an intraday high of 1.2689. The reason for this upward movement could be attributed to the bearish US dollar, which lost ground following the release of softer US PCE inflation data.
This has prompted speculation that the Fed may cut rates later this year. Additionally, expectations that the UK's Opposition Labor Party may win over the Conservative Party led by Prime Minister Rishi Sunak could potentially boost the GBP due to perceived political stability and policy expectations.
This was seen as another key factor supporting the currency pair higher. Traders are now awaiting the US June ISM Purchasing Managers Index (PMI) for further market direction, scheduled for release on Monday.
Impact of US PCE Price Index Data on GBP/USD Pair and Potential Fed Rate Cuts
On the US front, the broad-based US dollar edged lower following the release of softer US Personal Consumption Expenditures (PCE) Price Index data for May, marking its lowest annual rate in over three years.
This data provided some support to major currency pairs, fueling speculation that the Fed could cut interest rates later this year. Consequently, this has put downward pressure on the US dollar and contributed to gains in the GBP/USD pair.
On the data front, the US Bureau of Economic Analysis reported that the Personal Consumption Expenditures (PCE) Price Index eased to 2.6% annually in May from 2.7% in April. The core PCE Price Index, excluding food and energy prices, also slowed from 2.8% in April to 2.6% in May, marking its lowest annual rate since March 2021.
On the other hand, recent statements from Fed officials, including New York Fed President John Williams and Fed Governor Michelle Bowman, indicate a cautious approach, highlighting the central bank’s readiness to act if inflation remains elevated.
Therefore, the softer US PCE Price Index data, showing lower inflation rates, has contributed to upward pressure on the GBP/USD pair amid speculation of potential Fed rate cuts later in the year, weakening the US dollar.
Impact of UK General Election on GBP/USD Exchange Rate and Market Volatility
On the BOE front, the upcoming UK general election scheduled for Thursday is set to have a substantial impact on currency markets, especially the GBP/USD pair. Exit polls currently indicate a potential leadership change, with the Labor Party expected to overtake Prime Minister Rishi Sunak's Conservative Party.
This anticipated shift is likely to increase market volatility as investors react to potential new economic policies and leadership transitions. Traders and investors will closely monitor developments, as political shifts often influence market sentiment and the direction of currency pairs, including the GBP/USD exchange rate in the coming days.
Therefore, the GBP/USD pair is expected to experience increased volatility due to the potential change in UK leadership, impacting market sentiment and influencing exchange rate movements.
GBP/USD - Technical Analysis
GBP/USD is trading at $1.26738, reflecting a modest increase of 0.11% as it continues to show resilience on the 4-hour chart. The pivot point is identified at $1.2667, which serves as a crucial level for today's trading.
Immediate resistance is noted at $1.2702, with subsequent resistance levels at $1.2722 and $1.2748, providing key targets for potential bullish movement. On the downside, immediate support is situated at $1.2633, followed by deeper support levels at $1.2613 and $1.2594, marking potential floors that could prevent further declines.
The Relative Strength Index (RSI) is currently at 58, suggesting that the currency pair is approaching overbought territory but still maintains a bullish bias.
The 50-day Exponential Moving Average (EMA) is closely aligned with the pivot point at $1.2666, indicating this level as pivotal for determining short-term direction. If GBP/USD maintains its position above the pivot point, it is likely to attract further buying interest, reinforcing the bullish trend.
Traders should consider entering long positions above the pivot point of $1.26659, targeting a take profit level at $1.27019. A stop loss at $1.26457 is recommended to manage downside risk effectively.
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