GBP/USD climbs as Fed-BoE policy divergence favors Sterling
- GBP/USD rebounds from 1.3548 low to 1.3600 as Fed cut odds stand at 94% for a 25 bps move.
- UK inflation remains near 4% ahead of employment and CPI data, limiting the BoE's scope to ease policy.
- Policy divergence is seen boosting the Sterling, with the BoE expected to hold rates while the Fed resumes its easing cycle.
The Pound Sterling (GBP) advances during the North American session on Monday as traders are set to digest monetary policy meetings by major central banks across the Atlantic. Expectations for the first rate cut by the Federal Reserve (Fed) in nine months, and the Bank of England (BoE) keeping rates unchanged, would likely underpin the British currency.
GBP/USD trades at 1.3586, up 0.22% after bouncing off daily lows of 1.3548 at the time of writing.
Pound gains as traders price Fed cut and expect BoE to hold, narrowing interest rate differential
The Federal Reserve is expected to reduce rates by 25 basis points in a meeting that starts on Tuesday and ends with the central bank’s decision, update to its economic projections and the Fed Chair Jerome Powell press conference. Unless there is a surprise, money market players had priced in a 94% chance of a quarter percentage cut, while there is a slim chance of 6% for a big size cut.
Regarding the UK, a busy economic docket will feature employment data on Tuesday, Consumer Price Index (CPI) on Wednesday and the BoE’s decision on Thursday. Inflation in the UK had failed to ease, it is closing to the 4% threshold and warrants further tightening by the UK central bank.
Therefore, a reduction in the interest rate difference between the US and the UK would favor further upside in the GBP/USD pair.
GBP/USD Price Forecast: Technical outlook
GBP/USD remains upward biased, after hitting the week's highs at 1.3620, though buyers must achieve a daily close above 1.3600 to pave the way for further upside. The next key resistance levels would be the July 4 high at 1.3681, ahead of 1.3700. A breach of the latter will expose the July 1 high at 1.3788.
On the flip side, if GBP/USD struggles at 1.3600, the pair could be poised to challenge 1.3550. On further weakness, a test of the 20-day SMA at 1.3497 is on the cards.
Pound Sterling Price This Month
The table below shows the percentage change of British Pound (GBP) against listed major currencies this month. British Pound was the strongest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.55% | -0.71% | 0.25% | 0.53% | -1.75% | -1.24% | -0.62% | |
| EUR | 0.55% | -0.16% | 0.75% | 1.11% | -1.21% | -0.69% | -0.06% | |
| GBP | 0.71% | 0.16% | 0.80% | 1.25% | -1.06% | -0.53% | 0.14% | |
| JPY | -0.25% | -0.75% | -0.80% | 0.33% | -1.99% | -1.46% | -0.84% | |
| CAD | -0.53% | -1.11% | -1.25% | -0.33% | -2.26% | -1.76% | -1.09% | |
| AUD | 1.75% | 1.21% | 1.06% | 1.99% | 2.26% | 0.53% | 1.21% | |
| NZD | 1.24% | 0.69% | 0.53% | 1.46% | 1.76% | -0.53% | 0.68% | |
| CHF | 0.62% | 0.06% | -0.14% | 0.84% | 1.09% | -1.21% | -0.68% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
Author
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
