(MENAFN- Investor Ideas) Investorideas, a go-to platform for big investing ideas releases market commentary from Rania Gule, Senior Market Analyst at XS
The GBP/USD pair saw a slight increase at the beginning of this week, breaking a three-day losing streak that pushed it down to 1.2600, its lowest level in two weeks. With current prices trading around the 1.2630-1.2635 area, the pair registered a modest 0.10% rise on Monday. However, the pressing question remains whether this upward movement will continue shortly, especially given the major economic events expected this week.
This week is likely to be volatile, as both the Federal Reserve and the Bank of England will announce their monetary policy decisions, which could add further tension to the forex markets, in my opinion.
From my perspective, the rise in prices is unlikely to be substantial in the near term, especially with the major central bank meetings approaching. Both the Federal Reserve and the Bank of England will play a pivotal role in shaping the course of the GBP/USD pair.
On Wednesday, the Federal Reserve is expected to announce its monetary policy decision. It is widely anticipated that the Fed will continue reducing borrowing costs for the third consecutive time, although markets are considering the possibility of a slowdown in the pace of these cuts shortly.
Traders will be especially focused on the accompanying statement, including the updated economic outlook and the so-called "dot plot," which will clarify the long-term trajectory of monetary policy. Jerome Powell's remarks in the post-meeting press conference will be highly influential, as they will provide investors with signals regarding the future direction of U.S. interest rates, which will directly impact the movement of the U.S. dollar.
In the same week, the Bank of England will hold its meeting on Thursday, and it is expected to keep interest rates unchanged. While the Bank of England is taking a gradual approach to reducing interest rates, comments from Governor Andrew Bailey could negatively affect the performance of the British pound. He has indicated that the central bank is likely to move toward rate cuts in the future, with the potential for four cuts in 2025.
I believe these remarks may limit optimism regarding the pound and prevent traders from taking aggressive bullish positions. Therefore, while the British pound has seen some increase, the current conditions warrant caution, and it cannot be concluded that prices have reached a bottom at the 1.2600 level.
Currently, attention is also focused on the upcoming economic data this week, which will directly affect the movement of GBP/USD. Starting on Monday, the preliminary PMI data from both the UK and the U.S. will be released, which I believe will provide a broader view of the strength of both economies.
These data come at a critical time, as traders will be closely watching for any signs of strength or weakness in the UK or U.S. economies. Additionally, the UK employment data on Tuesday and U.S. retail sales on the same day will impact future market expectations. Later in the week, the UK consumer inflation figures will be released on Wednesday, followed by the final U.S. GDP data on Thursday, which will offer important signals about the strength of the U.S. economy. The week will conclude with U.K. retail sales data on Friday, which will add more momentum to the forex markets.
Thus, I can conclude that a combination of economic and political factors will influence the GBP/USD movement this week. While expectations suggest that the U.S. dollar may weaken due to the Federal Reserve's dovish monetary policy, the British pound faces local pressures due to inflation expectations and the Bank of England's likely decision to maintain the current policy. Despite the slight increase in the pound this week, investors remain cautious and watchful, as political and economic developments could lead to significant market volatility.
In my view, the challenges related to inflation and economic growth in the UK will be key factors influencing traders' stance on the British pound. While higher interest rates help support the currency, concerns about slowing growth and rising inflation may lead to hesitation among investors in taking strong bullish positions. At the same time, the U.S. dollar remains a dominant factor in the global market, and it is expected to be affected by global economic trends, including developments in Federal Reserve policy and upcoming growth and inflation data.
Ultimately, I believe the GBP/USD pair will remain under the influence of monetary policy expectations, with careful attention needed on the upcoming economic data. Despite some temporary optimism due to the modest rise, current conditions suggest that caution is needed before taking large positions in any direction.
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