**Pound Sterling Extends Winning Streak Against US Dollar Ahead of Key UK, US Data**
*Based on the original article by Matías Salord, FXStreet*
The British pound sterling (GBP) continued its strong performance against the US dollar (USD), registering yet another day of gains in the lead-up to closely-watched economic data releases from both the United Kingdom and the United States. Market attention is galvanized by the prospect that central bank policy and incoming macroeconomic figures will set the tone for sterling’s near-term direction. Traders are keenly awaiting critical data that could offer fresh clues on the timing and scale of interest rate moves by the Bank of England (BoE) and the Federal Reserve (Fed).
## Recent Performance: GBP/USD Extends Rally
The GBP/USD pair rallied further, extending its winning streak amid mixed signals from both the UK and US economies. Sterling’s resilience is underpinned by the perception that the BoE could remain more “hawkish” than previously anticipated, while some softening in the Fed’s outlook has weighed on the greenback. The forex market has tilted towards risk-on sentiment, offering support to higher-yielding currencies like sterling.
Key highlights of the pound’s recent performance:
– GBP/USD climbed to new multi-week highs, maintaining momentum accumulated over several sessions.
– Sterling’s strength is notable despite lingering uncertainties on the UK economic outlook and the broader global context.
– The US dollar, as measured by the DXY index, lost ground against most major rivals, reflecting shifts in rate expectations and investor risk appetite.
## Drivers Behind Sterling’s Strength
Several contributing factors lie behind the recent appreciation of the pound against the dollar, even as both economies prepare for a week rich in market-moving releases.
### Diverging Monetary Policy Expectations
– **Bank of England (BoE) Policy Outlook**: Traders are reassessing their expectations of when and how aggressively the BoE will cut rates this year. Persistent inflation in the UK and robust wage growth have reduced the likelihood of imminent and deep rate cuts.
– **Federal Reserve Caution**: On the other side, the US Federal Reserve’s messaging has introduced nuanced uncertainty. While US inflation has moderated, the Fed is treading carefully, and markets now largely expect fewer rate cuts in 2024 than anticipated at the start of the year.
### Economic Data Surprises
– **UK Data**: Recent UK economic releases have been mixed but generally not weak enough to justify an immediate policy pivot from the BoE. Wage data and inflation prints remain sticky.
– **US Data**: Conversely, US data have signaled some cooling in the labor market and inflation trends, reducing support for the dollar.
### Global Risk Sentiment
– As investor risk appetite has improved, the pound has benefited from flows into currencies perceived as undervalued or poised for policy divergence.
– The euro and the pound both have gained as market participants unwind long-dollar positions.
## Focus on Upcoming Data: What Traders Are Watching
With the pound’s trajectory closely tied to economic fundamentals, both UK and US releases this week have the potential to reshape market sentiment. Key reports include:
### UK Employment and Wage Data
– The labor market snapshot is crucial for the BoE, particularly average weekly earnings, unemployment rate, and claimant count change.
– High wage inflation will reinforce expectations that the BoE will move cautiously on rate cuts, lending further support to sterling.
### UK GDP Growth Statistics
– GDP figures are crucial for assessing whether the UK economy is managing to avoid a recessionary environment.
– Stronger-than-forecast growth would further strengthen sterling and potentially delay BoE policy easing.
### US Inflation Data: CPI Report
– The Consumer Price Index (CPI) report is the marquee release of the week for the US.
– Any sign of re-acceleration in US inflation could revive expectations for Fed hawkishness, giving the dollar a boost.
– Conversely, softer CPI numbers may weaken the dollar
Read more on GBP/USD trading.