As GBP/USD Reaches a Multi-Week High, US PPI And FOMC Minutes Continue To Dominate Attention

Wednesday marks the sixth consecutive day of positive momentum for the GBP/USD pair, which reaches a three-week peak during the Asian session. At present, spot prices hover marginally below the 1.2300 round-figure threshold and continue to be substantiated by the prevailing selling sentiment associated with the US Dollar (USD).

As a result of the recent dovish comments made by a number of Federal Reserve (Fed) officials, investors retracted their wagers on the expectation that the US central bank would accelerate its policy tightening, which continued to drive down US Treasury bond yields. This causes the Greenback to lose ground, thereby providing a tailwind for the GBP/USD pair. Indeed, Atlanta Fed President Raphael Bostic stated on Tuesday that he does not foresee any impending recession and that the US central bank is not required to raise interest rates any further.

Moreover, the risk-on sentiment serves as an additional determinant exerting pressure on the safe-haven dollar and providing further assistance to the GBP/USD pair. Notwithstanding the escalating geopolitical tensions in the Middle East, the declining probability of additional interest rate increases by the Federal Reserve continues to stimulate investors' inclination towards assets with higher levels of risk. This is supported by the overall optimistic sentiment observed in the equity markets, which is perceived to be diverting capital outflows from conventional safe-haven currencies such as the US dollar.

In spite of this, the prospect of at least one additional Fed rate hike by the end of the year remains priced into the markets. Traders are currently unable to execute aggressive bearish wagers on the USD due to this. In addition, strengthening anticipations that the Bank of England (BoE) will sustain the existing state of affairs in November could potentially aid in the stabilisation of the GBP/USD pair. Indeed, the BoE unexpectedly halted its cycle of rate hikes in September and offered scant indications of its continued intention to increase interest rates.

Before positioning for an extension of the GBP/USD pair's recent recovery move from the 1.2035 area, or its lowest level since March, which was touched last week, it is prudent to await strong follow-through purchasing. At this time, market participants anticipate that the US Producer Price Index (PPI) and the minutes of the FOMC meeting will provide significant impetus later in the North American session. The attention will then turn to the publication of the most recent US consumer inflation figures on Thursday.