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As the USD Weakens, the GBP/USD Pair Advances Higher But Remains Below The 100-Day Moving Average Near 1.2500
For the second consecutive day, GBP/USD attracts some bids despite the prevailing USD selling bias. A positive risk tone and wagers that the Federal Reserve will not raise rates again undermine the dollar. Anticipated rate cuts by the BoE in 2024 in response to an impending recession in an effort to limit gains.
On Monday during the Asian session, the GBP/USD pair witnessed dip-buying and reached its highest level in three days, approximately 1.2470, within the last hour. However, spot prices continue to trade below the 100-day Simple Moving Average (SMA), which serves as critical resistance near the psychological 1.2500 mark and a two-month high that was reached last week.
The US Dollar (USD) is unable to record a significant recovery and is hovering near its lowest level since September 1. This is regarded as a crucial factor providing the GBP/USD pair with a tailwind. According to the US CPI and PPI reports that were released last week, the nightmare of elevated prices has at last come to an end. This would enable the Federal Reserve (Fed) to sustain the existing state of affairs during its December meeting and further exert pressure on the USD.
In addition, the possibility that the Federal Reserve will initiate interest rate reductions in early 2024 and orchestrate an economic gentle landing has been factored into market prices. As a result, the yield on the benchmark 10-year US government bond decreased to 4.379% on Friday, the lowest level in two months. Moreover, an overall optimistic sentiment observed in Asian equity markets serves to further weaken the safe-haven dollar and provides assistance to the GBP/USD pair.
In light of impending recession risks, the markets have advanced the anticipated date when the Bank of England (BoE) will commence reducing interest rates from their 15-year high. Weaker UK Retail Sales figures, which added to a slew of negative readings from the previous week and corresponded with the deteriorating prognosis for the British economy, reaffirmed the wagers. This could potentially impede any additional upward momentum in the GBP/USD pair.
Previous week's rejection near the 1.2500 mark, which also served as the 100-day SMA barrier, cautions against placing new bullish wagers until there is substantial follow-through buying, even from a technical standpoint. Traders will be able to capitalise on short-term opportunities and the USD price dynamics will continue to exert a significant influence on the GBP/USD pair in the absence of any market-moving economic releases from the United Kingdom or the United States.
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