**GBP/USD Bounces Off Session Lows to Trade at Fresh Highs Amid Dovish Fed Bets**
*Original author: Anil Panchal (as credited on Forex Factory)*
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The GBP/USD currency pair has rebounded impressively from session lows, scaling new intraday highs during the US trading hours. This resurgence of the British pound against the US dollar reflects a confluence of factors influencing currency markets, including market sentiment, central bank commentary, and expectations regarding future monetary policy. Below is an in-depth analysis of the underlying dynamics driving GBP/USD’s recent price movement.
## GBP/USD Recovers from Lows: What Happened?
During Tuesday’s trading session, the GBP/USD pair initially came under selling pressure, dipping to test recent support zones. However, as sentiment shifted during New York trading, bullish momentum gathered pace. The pair staged a notable recovery as traders digested dovish signals from the Federal Reserve and assessed the broader macroeconomic landscape. By late US hours, GBP/USD was trading solidly higher, reflecting renewed risk appetite and recalibrated interest rate expectations.
## Key Drivers of GBP/USD Price Action
### 1. Dovish Fed Commentary Reinforces Greenback Weakness
A central factor underpinning the move in GBP/USD was commentary from Federal Reserve Chair Jerome Powell and other FOMC members. The prevailing takeaway has been a reinforcement of dovish expectations:
– Powell’s recent statements suggested the Fed is unlikely to raise interest rates further unless there is material resurgence in inflation.
– Market participants increasingly anticipate at least one rate cut before the end of 2024.
– Economic data, including subdued inflation prints, have emboldened those expecting a sooner-than-expected policy pivot from the US central bank.
– The US dollar index slipped from its highs as bond yields retreated, offering the pound an opening to make gains.
### 2. UK Economic Data Provides Mixed Signals
While the US dollar’s softness was a principal driver, developments on the British economic front also influenced GBP/USD.
– The latest UK economic data painted a mixed picture, with some indicators pointing to moderate growth.
– Services PMI remains in expansion territory, supporting the view that the UK is avoiding recession risks for now.
– Wage growth, while easing, is still running above the Bank of England’s comfort zone, hinting at lingering inflationary pressures.
– Consumers appear relatively resilient, albeit cautious, as cost-of-living concerns persist.
### 3. Bank of England’s Policy Outlook
The Bank of England (BoE) continues to walk a tightrope, as policymakers weigh persistent inflation against signs of economic fragility.
– Recent remarks from BoE officials stress a data-driven approach.
– Market pricing suggests the BoE is moving closer to its first rate cut, likely in the coming quarters.
– Still, the timing and magnitude of easing remain contingent on further signals regarding inflation, wages, and growth.
### 4. Market Sentiment and Technical Factors
Apart from fundamental drivers, sentiment and technical levels played a significant role in GBP/USD’s reversal during the session.
– Traders took advantage of oversold technical conditions at session lows.
– Short-covering and positioning adjustments amplified the move, especially as key resistance levels were breached.
– Options-related flows and stop-loss hunting fueled additional volatility.
## Analyzing USD Weakness: Context and Catalysts
The broader weakness in the US dollar provided a supportive backdrop for GBP/USD’s surge:
#### – **US Yield Declines**
– Declining Treasury yields, especially at the front end, reduced the greenback’s interest rate advantage.
– Investors are pricing in a growing probability of Fed rate cuts as inflation cools.
#### – **Risk-On Tone in Global Markets**
– Equity markets rallied, reflecting a recovery in risk sentiment.
– Flows out of safe-haven assets and into riskier currencies, like the pound, ensued.
#### – **Soft US Macro Data**
– Recent US data patches
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