Mon, July 22, 2024

GBP/USD Faces Uncertainty Ahead of US CPI & FOMC

Wibest – Pound Sterling: Pound sterling coins. gbp

Quick Look:

  • UK’s GDP showed no growth in April 2024, with declines in manufacturing, industrial production, and construction sectors.
  • PM Rishi Sunak’s Conservative Party faces pressure ahead of the July 2024 elections amid economic and cost of living issues.
  • The GBP/USD pair found support at 1.2736. Upside targets at 1.2800 and 1.2895, influenced by US CPI data and FOMC statements.

The GBP/USD currency pair is navigating significant uncertainty due to the impending release of US Consumer Price Index (CPI) data and the Federal Open Market Committee (FOMC) statements. Economic data points and political factors in the UK and the US have massively influenced the pound sterling’s performance.

UK GDP Stagnant: 0% Growth in April 2024

The latest data on the UK’s economic performance paints a challenging picture. The GDP for April 2024 showed no growth, starkly contrasting the 0.6% increase in April 2023 and the 0.7% rise in March 2024. The manufacturing and industrial production sectors are both contracting alongside the construction industry. Thereby indicating widespread economic stagnation. The jobs report highlights that 50,000 individuals claimed unemployment benefits. Besides, the unemployment rate increased to 4.4% in April 2024 from 4.3% in March 2024.

The political backdrop in the UK adds another layer of complexity to GBP. The Conservative Party, led by Prime Minister Rishi Sunak, faces mounting pressure ahead of the elections scheduled for 4th July 2024. Key issues such as the cost of living crisis, sluggish economic growth, and missteps by party officials are prominent in the public discourse. The Labour Party, as the main opposition, is positioning itself as a viable alternative.

GBP/USD Finds Support at 1.2736, Targets 1.2800

Recently, the GBP/USD pair experienced a halt in its decline due to position adjustments by traders. The currency pair found support at the 1.2736 level, with potential upside targets set at 1.2800 and 1.2895. The forthcoming US CPI data and the FOMC statement heavily influence the sterling movement. These are expected to provide significant market direction.

The US inflation rate is expected to remain stubbornly above the 2% target, which could influence the Federal Reserve’s decisions regarding the fed funds rate. Previously, projections in March indicated three rate cuts for 2024; however, current expectations suggest fewer cuts might be on the horizon. Should the FOMC remove two rate cuts from their projection, it will likely lead to an appreciation of the US dollar.

Lower Gilt Yields: Minimal Impact on Pound So Far

Gilt yields have edged lower due to disappointing jobs and growth data from the UK. Despite this downward trend, the impact on GBP has not been substantial. Market participants are keenly watching for further developments that could sway currency movements.

The expectation that the US CPI will ease and the Federal Reserve will keep its policy steady currently drives market sentiment. Investors will primarily focus on the Fed’s updated projections for the timing and pace of future rate cuts. These will provide crucial insights for investors and traders.

GBP/USD Near 1.2750, RSI and MACD Indicate Bullish Trend

Technically, the GBP/USD pair is positioned near the 1.2750 mark, trading within an ascending channel. The Relative Strength Index (RSI) is above 50, indicating a bullish bias. At the same time, the Moving Average Convergence Divergence (MACD) is also bullish, with the MACD line above both the centerline and the signal line. These indicators suggest a potential for further upward movement, provided the fundamental factors align favourably.

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