**GBP/USD Price Analysis: September Cut on the Table as US Inflation Cools**
*By Yohay Elam, ForexCrunch*
**Overview**
Sterling traders are closely eyeing the unfolding narrative in the GBP/USD pair, with growing speculation that the US Federal Reserve could introduce an interest rate cut as soon as September. This anticipation follows a recent cooling in US inflation data, injecting renewed volatility into the currency pair. Price action reflects increasing sensitivity to macroeconomic triggers, including not just American economic indicators but also the outlook for the UK economy and Bank of England policy moves.
This report delves into the latest developments impacting GBP/USD, explores technical setups, and outlines the key risk factors for traders in the weeks ahead.
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**US Inflation Cools: The Catalyst for Rate Cut Bets**
The US Consumer Price Index (CPI) is a crucial barometer for gauging the Federal Reserve’s next steps. For the most recent month, headline CPI came in below consensus forecasts, providing relief to policymakers and markets alike. This reading has emboldened bets that the Federal Reserve will finally pivot toward monetary easing this autumn.
– **Latest US CPI highlights:**
– **Headline inflation:** Came in softer than forecast at 3.2% year-on-year for the past month.
– **Core inflation:** Excluding food and energy, rose by an annualized 3.4%.
– **Monthly print:** Maintained a muted 0.2%, reinforcing the moderation trend.
**Market Reaction:**
– The US Dollar Index promptly retreated following the inflation release, echoing investor sentiment that peak rates have passed.
– Treasury yields dropped, and equity markets posted modest gains, reflecting a recalibration of risk sentiment.
– Futures markets now price in a 65% probability of a September rate cut, a notable jump from 45% just a week ago.
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**GBP/USD: Technical Analysis**
The GBP/USD pair has responded dynamically to the shifting landscape, testing key technical levels after a sustained period of range-bound movement.
**Key Technical Levels:**
– **Support:**
– 1.2600: Strong demand zone underpinning price over recent sessions.
– 1.2500: A psychological level and previous swing low offering additional support.
– **Resistance:**
– 1.2750: Initial topside barrier, corresponding to the mid-June highs.
– 1.2850: Next, a more formidable resistance stemming from multi-month highs.
**Chart Patterns:**
– The pair has created a series of higher lows on the daily chart, pointing to bullish momentum building since early July.
– RSI indicators are holding just above 50, suggesting a neutral-to-bullish tilt but not yet in overbought territory.
– Moving Averages (21 and 50-day EMAs) are converging just below the current price, hinting at a potential breakout.
**Volatility Signals:**
Implied volatility metrics for GBP/USD options show a spike, with traders hedging against both upside and downside surprises from central bank meetings and incoming economic data.
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**Macro Backdrop: Monetary Policy Divergence at the Fore**
Much of GBP/USD’s trajectory hinges on the evolving divergence or convergence in monetary policy between the Federal Reserve and the Bank of England.
**Federal Reserve:**
– The Fed has paused rate hikes, citing progress in taming inflation amid a gradual inflation downtrend.
– Labor market data, though still firm, shows some signs of softening, with wage growth moderating.
– Policymakers, including Chair Jerome Powell, have emphasized data dependency, but markets currently lean toward an autumn rate cut.
**Bank of England:**
– The BoE recently delivered a cautious message, holding rates at a 16-year high but warning that upside price pressures remain.
– UK inflation, while falling, is still running above the BoE’s 2% target, particularly
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