GBP/USD Climbs to Six-Day High as Hawkish Bets Gain Traction

In a compelling turn of events, the GBP/USD currency pair surged to a fresh six-day high, surpassing the 1.2760 mark during the European morning on Wednesday. The near-term technical analysis reveals an intriguing buildup of bullish momentum, as recent economic data and market sentiment combine to drive Pound Sterling higher against the US Dollar. With a focus on wage inflation and hawkish Bank of England (BoE) speculations, the pair's trajectory is primed for exploration.

Wage Inflation Sparks Momentum

The bullish ascent of GBP/USD was catalyzed by strong wage inflation readings unveiled on Tuesday. This positive economic indicator laid the foundation for the subsequent surge, setting a favorable tone for the currency pair's performance. The anticipation of a potential rate hike by the BoE served as a significant driver for investor sentiment, reinforcing the optimism surrounding the British Pound.

Steadfast Core Consumer Inflation

Wednesday's data release from the UK brought attention to core consumer inflation, which remained resilient throughout July. The Consumer Price Index (CPI) exhibited a decrease to 6.8% on a year-on-year basis, down from 7.9% in the preceding month of June. Remarkably, the Core CPI held firm at 6.9%, a testament to the enduring stability within the UK's economic landscape. This steadfast performance bolstered the market's confidence in the Pound Sterling's potential.

Hawkish BoE Bets Fuel Optimism

As the dust settled on the inflation figures, hawkish bets on the Bank of England's policy stance gained traction, infusing the market with renewed optimism. The prevailing sentiment is that a rate hike of 25 basis points (bps) is fully priced in for September, with expectations of the BoE raising the policy rate by a total of 75 bps by February 2024. This forward-looking analysis, coupled with the latest employment report and inflation data, amplified the appeal of Pound Sterling in the midweek trading.

Federal Reserve Meeting Minutes in Focus

While the Federal Reserve is set to release the minutes of its July policy meeting, market participants are likely to shift their attention away from this publication. Instead, the spotlight will be firmly fixed on the action within Wall Street. The significance of these market movements could overshadow the details within the Federal Reserve's minutes, underscoring the dynamic interplay between economic data, central bank policies, and investor sentiment.

US Dollar's Resilience Tested

Despite upbeat Retail Sales data, a headline concerning potential downgrades of major banks, including JPMorgan, managed to curtail the US Dollar's gathering strength. The focus on financial stocks and their potential impact on the USD's performance introduces an intriguing layer of uncertainty to the currency market. Should bank stocks continue to trend lower after the opening bell, the US Dollar could face renewed selling pressure, potentially providing GBP/USD with further room to stretch its gains.

The GBP/USD currency pair's recent climb to a six-day high above 1.2760 highlights the intricate web of economic indicators, central bank speculations, and market dynamics that influence currency movements. Strong wage inflation, resilient core consumer inflation, and hawkish BoE bets have converged to drive bullish momentum for Pound Sterling. While the Federal Reserve's meeting minutes beckon, the market's immediate focus remains on Wall Street's actions and the potential impact on the US Dollar. As investors navigate these dynamic forces, the GBP/USD pair's trajectory remains poised for further exploration and potential gains.


TurnAround Point: 1.2710

Our preference

Long positions above 1.2710 with targets at 1.2790 & 1.2810 in extension.