**GBP/USD Bounces Off Session Lows to Trade at Fresh Highs Above 1.2700 – Analysis and Outlook**
*Based on content originally by Anil Panchal, Forex Factory.*
**Overview**
The GBP/USD currency pair has demonstrated notable resilience on the current trading day, rebounding sharply from early losses to post fresh session highs above the 1.2700 threshold. The pair’s recovery comes amid evolving market sentiment regarding US economic indicators, shifting expectations for Federal Reserve policy, and ongoing developments in the UK macroeconomic landscape. This article offers an in-depth look at the price action, underlying drivers, technical picture, and prospects for the cable in the near term.
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**Market Recap: Early Weakness Reversed by Fresh Buying**
GBP/USD started the session under pressure, dipping towards session lows amid a generally cautious tone in global markets and a brief bout of US dollar strength. Several factors contributed to the initial decline:
– **Profit-taking** by traders after recent GBP/USD rallies.
– A **resilient dollar** on the back of lingering safe-haven demand and positioning ahead of key US macro releases.
– **Bearish sentiment** stemming from uncertainty regarding both UK and US economic momentum.
However, sentiment in the pair reversed as buyers emerged. GBP/USD gained over 40 pips off its session bottom, climbing well above the 1.2700 psychological level amid:
– A **pullback in US Treasury yields**, with the 10-year benchmark easing from intraday highs.
– Softer-than-expected performance by the greenback in response to economic data misses and dovish re-pricing of Fed expectations.
– Renewed demand for high-beta currencies and risk assets, translating to sterling strength.
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**GBP/USD: Key Drivers Behind the Rebound**
1. **US Dollar Dynamics**
The US dollar’s performance has been pivotal for GBP/USD price action. After strengthening earlier in the week, the dollar lost traction due to softer macroeconomic signals and shifting monetary policy bets.
– **US Jobless Claims**: The latest initial claims release indicated an uptick in Americans filing for unemployment benefits, raising concerns about the labor market’s robustness.
– **ISM Services PMI**: Recent data from the Institute for Supply Management revealed a contraction in the services sector, surprising markets and fueling speculation that economic headwinds are mounting.
– **Fed Policy Outlook**: Markets are currently revisiting the likelihood of the Federal Reserve initiating rate cuts later in 2024. The CME FedWatch Tool shows a rising probability of a September rate cut, weighing on the greenback.
2. **UK Macro Developments**
Sterling’s recovery is also linked to domestic developments within the UK:
– **Inflation Persistence**: Headline and core inflation rates in the UK remain above the Bank of England’s target, prompting market participants to scale back aggressive rate cut bets for the BoE. This has provided underlying support for the pound.
– **Growth Concerns**: While GDP growth remains modest, recent survey data from the UK’s services sector has been more upbeat, allaying concerns of an imminent recession.
– **Political Uncertainty**: As the UK approaches a general election, political rhetoric and fiscal policy hints are being watched closely. So far, these themes have not unsettled the pound, though volatility could rise as election day approaches.
3. **Risk Sentiment**
The overall risk appetite in global markets has been a crucial ingredient in sterling’s fortunes:
– **Equity Markets**: Steady gains in global equities and a retracement in volatility indices have encouraged flows into cyclical and risk-related currencies such as the pound.
– **Geopolitics**: While Middle East tensions persist, the absence of escalation has kept risk-off moves contained, allowing the GBP to recuperate.
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**Technical Analysis: GBP/USD Reclaims Bullish Momentum**
GBP/USD price action on the day underscores a strong technical bounce from
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