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GBP/USD Consolidates Recent Gains To a Multi-Week High And Holds Above The Middle Of 1.2500
Since May 11, GBP/USD has oscillated within a limited trading range close to its highest level. The USD is supported by a tailwind created by expectations of an imminent Fed rate rise pause. Expectations of additional rate increases by the Bank of England provide added support for the major.
During Friday's Asian session, the GBP/USD pair is anticipated to consolidate the overnight surge to its highest level since May 11 and oscillate in a narrow trading band, just above the mid-1.2500s.
The US Dollar (USD) continues to languish near a two-week low due to the disappointing release of US Initial Jobless Claims, which functions as a tailwind for the GBP/USD exchange rate. The US Department of Labor (DOL) reported on Thursday that the number of Americans filing new claims for unemployment benefits increased more than expected, reaching the highest level in over 1 1/2 years. This reinforced market expectations that the Federal Reserve (Fed) will halt rate increases following its June 13-14 policy meeting. This caused the overnight decline in US Treasury bond yields and weakens the dollar.
In addition, a modest improvement in global risk sentiment adds additional pressure to the safe-haven dollar and provides additional support for the GBP/USD pair. Nonetheless, concerns regarding a global economic downturn may dampen market optimism. In fact, the Organization for Economic Co-operation and Development (OECD) predicts that the global economy will experience a sluggish recovery over the next few years due to persistent core inflation and tighter monetary policy, both of which impact on demand. The OECD now anticipates that the global economy will expand by 2.7% this year, which would be the lowest annual growth rate since the 2008-2009 financial crisis, excluding the pandemic-affected year of 2020.
In addition, traders' reluctance to place aggressive bullish wagers on the GBP/USD pair is restrained by expectations that the Fed will raise rates again in July, thereby limiting the dollar's downside potential. Despite the dovish comments made by several Fed officials last week, this week's unexpected rate hikes by the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) indicate that the fight against inflation is not yet over. This strengthens the case for further Fed tightening. As a result of expectations that the Bank of England (BoE) will be much more aggressive in its policy tightening to combat stubbornly high inflation, the major currency's downside remains limited.
Traders may prefer to remain on the sidelines until the release of the latest US consumer inflation data and the highly anticipated FOMC monetary policy meeting the following week. In the interim, the GBP/USD pair remains at the behest of USD price dynamics in the absence of market-moving economic releases from either the United Kingdom or the United States. Nonetheless, market prices are expected to increase for a second consecutive week.
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