GBP/USD Finds Neutral Ground Amidst Downward Trend
At the beginning of the trading day, the pair experienced a slight increase in price which brought it up to the 1.2075 price region. However, this increase was short-lived, as the pair encountered a fresh supply, or an increase in sell orders, during the afternoon trading session. This supply resulted in the price dropping to a new low for the day.
The low point was near the psychological level of 1.2000, an important price level that traders usually watch closely. After reaching this low, the spot prices, which refer to the current market price of an asset, managed to rebound and stabilize in what is called “neutral territory.”
Despite the initial increase in price, the pair ultimately faced a downward trend throughout the day. However, the stabilization in the neutral territory could suggest that the market is becoming more balanced and may indicate a potential shift in direction in the future.
The pair’s value is decreasing because the US dollar is high compared to previous weeks. This decrease can be attributed to the Federal Open Market Committee (FOMC) tightening its monetary policy as per recent meeting minutes. The central bank aims to reduce inflation, so they opt for a “hawkish” stance of raising interest rates.
The FOMC’s strategy is bolstered by positive economic data in the US, which indicates that the economy is performing well, even in the face of higher borrowing costs. This data has given the Fed more confidence to continue its current approach as they work towards controlling inflation.
Investors are enthusiastic as the Federal Reserve prepares for its upcoming policy meeting. There are high expectations for a 0.25% increase in interest rates, which has elevated yields. As a result, the US dollar is enjoying robust support.
However, the optimistic outlook for global equity markets has limited the demand for the US dollar as a safe-haven asset. Meanwhile, the BoE also wants to raise interest rates. This policy shift has played a crucial role in preventing the pair from experiencing a sharp decline.
Historically, rising interest rates make a currency more appealing to investors, which could contribute to the GBP’s continued stability. Furthermore, recent positive business activity data from the UK may prompt the BoE to keep raising interest rates to combat inflation.
However, this suggests it is too early to declare the end of the GBP/USD pair’s recent upward trend. Therefore, traders will avoid rush decisions and anticipate a drop below the psychological 1.2000 level before confirming a potential reversal.
Upcoming US Economic Events and FOMC Commentary Could Impact GBP/USD
The economic calendar for the upcoming days is packed with key events that will generate interest in the trading community. Specifically, traders will monitor the Weekly Initial Jobless Claims figures and the second estimate of a country’s Gross Domestic Product (GDP) for Q4.
In addition to these events, the markets will follow the remarks of influential members of the FED, including President Raphael Bostic of the Atalanta FED and San Francisco Fed President Mary Daly.
Another critical factor that traders will monitor is the performance of US bond yields and the overall market risk sentiment. Depending on how these variables play out, the strength of the US dollar and the direction of the Pound/Dollar pair may be influenced positively or negatively.