The Pound Sterling (GBP) experienced a significant rally against the US Dollar (USD) on Wednesday, reaching nearly 1.2850 during the New York session. This surge was fueled by the softer-than-expected US Consumer Price Index (CPI) report for May, which indicated easing inflationary pressures.
US Inflation Cools, Rate Cut Bets Heat Up
The CPI report revealed a decline in both headline and core inflation, falling short of forecasts. This sparked speculation that the Federal Reserve (Fed) might cut interest rates sooner than anticipated, potentially as early as September. The probability of a September rate cut has jumped to nearly 73%, according to the CME FedWatch tool.
Market volatility is expected to remain elevated as traders await the Fed’s monetary policy decision later on Wednesday. While no rate change is expected, all eyes will be on the Fed’s “dot plot,” which offers insights into the future path of interest rates.
Sterling Shines Despite Lackluster UK Data
The Pound Sterling has shown resilience against other major currencies, even in the face of stagnant UK monthly Gross Domestic Product (GDP) and a contraction in Industrial Production for April. The weaker-than-expected factory data raises concerns about the impact of high interest rates on households and businesses, potentially influencing the Bank of England’s (BoE) future policy decisions.
Technical Analysis: GBP/USD Breaks Above Key Fibonacci Level
The GBP/USD pair rebounded strongly from a near two-week low of 1.2690, finding support near the 20-day Exponential Moving Average (EMA). The 50-day EMA also remains on an upward trajectory, suggesting a positive near-term trend.
Notably, the pair has surged above the 78.6% Fibonacci retracement level at 1.2770. However, the Relative Strength Index (RSI) indicates that momentum is starting to wane.