GBP/USD bulls printing fresh bull cycle highs

GBP/USD is a touch higher on Thursday as the US Dollar slides deeper into what might be regarded as a meanwhile critical supporting area on the DXY´s daily chart. The price has traveled between a low of 1.2477 and a high of 1.2537 on the day so far and at the time of writing, the price is perched near the highs of the day at 1.2530, up 0.37%. 

The British pound has been touching its strongest level since June 2022, as traders access the landscape across the pond with both US and UK data sending signals to markets as to how the two central banks are likely to respond. 

For the US, there has been a series of data that is pointing to a pivot from the Federal Reserve and a mild recession later this year. There are signs of easing inflationary pressures and a slowdown in the country's labor market, both of which have started to reinforce the chances the Federal Reserve will be delivering a final rate hike in May before pausing its tightening cycle. This has seen the DXY index fall to as low as 100.84 and 200 points lower than the highs of the week.

The drop comes after the Consumer Price Index (CPI) inflation data on Wednesday came in at 5% year-on-year in March, down from 6% in February. The Greenback has been offered despite hotter Core inflation, which strips out volatile food and energy prices. The Core picked up to 5.6%, from 5.5% the previous month. Nevertheless, the data on Thursday confirmed the easing inflationary pressures with the Producer Price Index (PPI) for final demand dropping 0.5% last month. In the 12 months through March, the PPI increased 2.7% which was the smallest year-on-year rise since January 2021 and followed a 4.9% advance in February.

Furthermore, other data on Thursday showed that the number of Americans filing new claims for unemployment benefits increased more than expected last week, another sign that what has otherwise been considered a tight labor market is easing, up as higher borrowing costs, for which the Federal Reserve has triggered in its monetary policy path to date, has dampened demand in the economy.

As such, the data is boosting expectations that the Federal Reserve is near the end of its rate hiking cycle. Fed funds futures traders are now pricing for the Fed's benchmark rate to peak at 5.002% in June, from 4.830% now, before falling back to 4.278% in December.

BoE / Fed divergence coming in?

On the other side of the pound, a ONS report showed Britain's GDP stagnated in February due to strikes by public workers but January's growth was revised higher, suggesting the economy might avoid a recession in early 2023. On the policy front, the divergence between the Federal Reserve and the Bank of England that had been keeping a lid on GBP/USD is coming in. The BoE is expected to continue to raise interest rates further to combat inflation. For instance, Chief Economist Huw Pill said last week the central bank still could not be sure that it has raised interest rates enough to tame inflation.