GBP/USD is on the rise, accompanied by a falling dollar index. An uptrend has been forming since the 10th of November and is still ongoing. As the Federal Reserve (FED) is currently proceeding cautiously regarding potential further rate hikes, the markets have largely disregarded the idea of another rate increase. The swap market is only pricing in another hike with a 6% probability, and the expectation of a rate cut has moved closer to one or two meetings for 2024. This shift is attributed to colder-than-expected inflation and further normalization signals from the job market in the US.
The markets will not anticipate another move from the Bank of England either. Governor Bailey did not appear enthusiastic about the idea of further hikes but is keeping the door open for now. However, some members, like Mann, indicate that higher rates will be appropriate, and the demand is expected to remain strong for a while.
While the markets were focused on the central banks, Sunak and Hunt revealed a plan for tax cuts to stimulate investments. Hunt tweeted, ‘With inflation halved, we can turn to the next phase of our economic plan – boosting our long-term economic growth.’ The first phase of the plan appears to be a tax break for investments in plants and machinery, but the details should become clearer as of today.
As the focus remains on rapidly changing fundamentals, technical analysis suggests the likelihood of further upside is significant. The perfect cup and handle formation is aiding GBP/USD in pushing higher. The key previous resistance at 1.25 is now acting as a perfect support. The short-term uptrend has also coincided with the 1.25 level, and the 89-hour moving average is providing support from below. As long as the 1.2480-1.25 zone holds against any downside moves, GBP/USD may attempt another push towards the 1.2550 resistance. With a breakout, it could extend towards the cup and handle formation’s target level at 1.2630.
The real threat to GBP bulls will emerge with a break of the support zone, which could weaken upward pressures enough to trigger a downward correction.
(GBPUSD Hourly Chart)
