**GBP/USD Rebounds Toward 1.3517 as BoE Rate Cut Bets Fade and Dovish Pivot Weakens the Dollar**
*By TradingNews.com Editorial Team*
The GBP/USD currency pair has staged an impressive rebound, clawing back ground towards the 1.3517 region as traders recalibrate expectations around the Bank of England’s (BoE) monetary policy stance. Simultaneously, renewed softness in the US dollar, influenced by market speculation of a dovish tilt from the Federal Reserve, has given further impetus to the sterling’s gains. This article offers an in-depth examination of the key drivers behind the cable’s upward trajectory, dissecting recent macroeconomic developments, central bank rhetoric, and technical signals influencing market sentiment.
**Overview: The Sterling’s Resilience Amid Policy Crosswinds**
GBP/USD’s climb comes in the wake of significant volatility that had seen the pair slump on the back of broad-based dollar strength and UK domestic uncertainty. Recent sessions, however, reveal a robust recovery as:
– Investors start to question the likelihood and timing of a BoE rate cut, particularly after sticky UK inflation prints.
– The dollar faces renewed pressure due to dovish Federal Reserve communication, and softer US macroeconomic releases.
– Market mood improves as risk appetite returns, further softening demand for the dollar as a safe-haven asset.
**1. UK Inflation Surprises and the Shifting BoE Narrative**
Earlier in the year, markets had firmly priced in at least one rate cut by the BoE before year-end, spurred by dovish signals from policymakers and evidence that UK growth was softening. However, the recent inflation report provided a jolt:
– UK Consumer Price Index (CPI) inflation decelerated less than expected, with both headline and core readings remaining sticky above the central bank’s 2 percent target.
– Services inflation, closely watched by the BoE for underlying pressures, was particularly stubborn, reinforcing concerns that price growth may not abate as quickly as policymakers had hoped.
– As a result, several prominent BoE policymakers have publicly emphasized patience, suggesting rate reductions should only occur once they are confident inflation will return to target sustainably.
Given these developments, traders have reined in expectations for aggressive rate cuts, pushing back bets on when the BoE might ease policy.
**2. US Dollar Weighed Down by Federal Reserve’s Dovish Tilt**
While the BoE’s tone has turned less dovish, the Federal Reserve is moving in the opposite direction. After its latest meeting, Fed Chair Jerome Powell and other FOMC members signaled increasing caution over persistent disinflation and labor market softness, sparking market anticipation of a pivot toward easing later this year.
Key factors driving dollar weakness include:
– Softer-than-expected US data releases, particularly on jobs and business activity, strengthening the case for Fed rate cuts.
– A broader retreat in US Treasury yields, eroding the greenback’s yield advantage against its G10 counterparts.
– Market participants repricing the dollar as Fed funds futures signal a higher probability of 1-2 cuts before year-end.
This macro backdrop sets the stage for a sharp rally in the GBP/USD pair as interest rate differentials move in favor of the pound.
**3. Technical Analysis: Key Levels and Bullish Momentum**
Technical dynamics have also played an essential role in the cable’s rebound. After carving out a base near multi-month lows, GBP/USD has staged a decisive push higher, breaking through key resistance zones.
– The initial recovery was marked by a break above 1.3400, triggering momentum-based buying.
– Bullish signals were reinforced as the pair cleared the 50-day moving average and set sights on the next key resistance level at 1.3517.
– Technical indicators, including the Relative Strength Index, reflect strengthening bullish momentum, although overbought conditions warrant caution.
– If the upward move is sustained, the next upside targets lie at 1.360
Read more on GBP/USD trading.