GBP/USD Consolidates Near The 15-Month High, In The Region Of 1.3130; Bullish Potential Remains Intact

During Friday's Asian session, the GBP/USD pair oscillates within a narrow trading range and consolidates its recent robust gains registered over the past two weeks or so, to its highest level since April 2022. The current spot price range is between 1.3130 and 1.3125, and the fundamental environment continues to favour bullish speculators.

In response to rising expectations that the Federal Reserve (Fed) is nearing the conclusion of its policy tightening cycle, the US Dollar (USD) falls to a new 15-month low for the seventh consecutive trading day. In contrast, the British Pound (GBP) continues to be supported by rising wagers that the Bank of England (BoE) may need to increase interest rates further to combat high inflation. This should act as a tailwind for the GBP/USD pair and support the likelihood of an extension of the established uptrend in the near term.

After the widely anticipated 25 basis point increase in July, investors appear confident that the US central bank will hold interest rates constant for the remainder of 2018. The US CPI report released on Wednesday indicated a further moderation in consumer prices, which boosted wagers. In June, the US Producer Price Index (PPI) saw its smallest annual increase in nearly three years. This is a result of signs that the US labour market is cooling and should enable the Fed to moderate its hawkish stance, putting USD bulls on the back foot.

In contrast, current market pricing indicates that the BoE could increase interest rates from their present level of 5% to a cycle peak of 6.5% in order to reduce demand and inflation. The speculations were fuelled by stronger wage growth data in the United Kingdom, which, according to Governor of the Bank of England Andrew Bailey and UK Finance Minister Jeremy Hunt, undermines efforts to contain inflation. This, to a greater extent, mitigates the likelihood of a UK recession later this year and suggests that the path of least resistance for the GBP/USD pair remains higher.

Friday brings no market-moving economic data from the UK, leaving the major currency at the discretion of USD price dynamics. Traders will look to the release of the Preliminary Michigan US Consumer Sentiment Index later during the early North American session for cues. Together with the broader risk sentiment, this may affect the USD and give the GBP/USD pair a boost on the last trading day of the week. Nonetheless, spot prices remain on pace for strong gains and a second consecutive week in the black.