(MENAFN- Daily Forex)
GBP/USD surged unexpectedly after comments by the federal Reserve Chair were seen by analysts and market participants as increasing the odds of a September rate cut. As a result, stock prices rose, and the dollar weakened broadly after Jerome Powell told the European Central Bank's forum on central banking that significant progress had been made on inflation and that the process of bringing inflation down was back on track.
He added that if the
labor market becomes“unexpectedly weak .... that would also prompt us to respond.”
Investors are wondering whether the Fed will be in a position to cut US rates in September, with the dollar falling as confidence in such an outcome grows. According to forex trading, GBP/USD rose to 1.2688 resistance in the wake of Powell's comments to a committee in Sintra, Portugal, after being as low as 1.2615 earlier in the day.
In this regard, Michael Brown, senior analyst at Pepperstone, said:“Federal Reserve Chairman Powell's comments at the ECB's annual Sintra Forum this afternoon seemed, on the margin, just a touch more dovish than those made recently.”
For his part, Powell stressed that it is still too early to cut interest rates and that more evidence is needed on inflation and the labor market. Also, Powell indicated that he believes that keeping interest rates at restricted levels for an extended period is risky for the economy. Accordingly, the analyst added:“A comment like this seems to open the door to a rate cut in September.” Now, All eyes turn to the US jobs report on Friday. Given Powell's indication of the strength of the labor market, a report that is below consensus is likely to lead to a weaker dollar rises amid increased chance of Trump win
This was according to an analysis of recent developments in the forex market by ING Bank. "For the second time in five days, we've seen the dollar rise on the back of rising odds of Donald Trump winning the US presidency, this time after a positive Supreme Court ruling," says Francesco Pesole, head of FX analysis at ING Bank.
According to trading platforms, the GBP/USD exchange rate started the week's trading with gains as investors bought European assets amid signs that no single party would win a majority in the French legislative elections that will conclude on Sunday. The gains were then erased as the day progressed, with the pair trading at a five-day low of 1.2613 at the time of writing.
The analyst adds: "It's clear now that investors have made the Trump-dollar link stronger."
Meanwhile, the US Supreme Court ruled on Monday that former presidents are entitled to absolute immunity from prosecution for official acts they take while in office but not for unofficial acts. The landmark decision means that the federal election interference case against Donald Trump will return to a lower court, which will then decide how to enforce the ruling.
The trial in that case has been adjourned pending a ruling on the immunity claim, and it is now likely to be delayed further, removing another obstacle to Trump's return to the White House.“The US Supreme Court has granted Trump some immunity for his attempt to overturn the results of the 2020 election, making it unlikely that he will face trial before the November election,” the analyst explained.“For the second time in five days, the US dollar has risen on the back of a rising chance of Donald Trump winning the US presidency.”
ING Bank explains that the dollar is likely to benefit under a Trump regime due to the potential for tax cuts, trade protectionism, and greater geopolitical risks. "We have been bullish on the dollar all year on the basis that the Fed will cut rates more slowly than other central banks and that the dollar is underpriced heading into the US election," says George Saravelos, analyst at Deutsche Bank. Added, "It's fair to say that the dollar's strength in recent days is partly due to the market starting to price in a higher risk premium for this event."
On the stock exchanges front, FTSE 100 falls to lowest level in more than two months
According to trading, the FTSE 100 fell by more than 0.5% to hover around 8110 on Tuesday, resuming its downward trend to reach its lowest level since late April as markets continue to assess the macroeconomic backdrop and the potential impact of the Labor Party on markets after Thursday's election. According to trading, Anglo American shares resumed their selling pressure and were trading down nearly 5% this week, dragging down the performance of other industrial mining companies as prices rose.
Meanwhile, Sainsbury's shares fell 1.5% after reporting that its Argus business suffered from seasonal weakness amid falling demand for consumer electronics, while it maintained its current outlook, which was below expectations when it was first announced.
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Technical forecasts for the GBP/USD pair today:
Based on the daily chart attached, the GBP/USD price is trying to avoid further collapse below the support level of 1.2600 in order not to increase its losses. Technically, the currency pair's attempts to do so will not succeed without moving towards the resistance levels of 1.2775 and 1.2830, respectively. Today, the currency pair will be affected by the announcement of the minutes of the last meeting of the US Federal Reserve, and tomorrow the British elections. Ultimately, this is in addition to the extent of investors' appetite for risk or not.
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