- GBP/USD bulls take control as the US Dollar enters key support territory.
- The market anticipates that the Federal Reserve will be ending its rate hike cycle.
GBP/USD is a touch higher on Thursday as the US Dollar slides deeper into what might be regarded as a meanwhile critical supporting area on the DXY´s daily chart. The price has fluctuated between a low price of 1.2477 to a high price of 1.2537 so far in the day. At the moment of writing, the price is at or near the highs at 1.2530. This is up 0.37%.
The British pound has been touching its strongest level since June 2022, as traders access the landscape across the pond with both US and UK data sending signals to markets as to how the two central banks are likely to respond.
There have been several data points that point to the US experiencing a pivotal Federal Reserve move and possibly a mild recession later in the year. There are signs of easing inflationary pressures and a slowdown in the country’s labor market, both of which have started to reinforce the chances the Federal Reserve will be delivering a final rate hike in May before pausing its tightening cycle. The DXY Index has dropped to 100.84 and 200 point lower than its highs this week.
This drop is caused by the Consumer Price Index’s (CPI) inflation data, which showed a 5% annualized increase in March from 6% in February. The Greenback has been offered despite hotter Core inflation, which strips out volatile food and energy prices. The Core picked up to 5.6%, from 5.5% the previous month. However, Thursday’s data confirmed the decreasing inflationary pressures. The Producer Price Index (PPI), for final demand, fell 0.5% last week. In the 12 months through March, the PPI increased 2.7% which was the smallest year-on-year rise since January 2021 and followed a 4.9% advance in February.
Furthermore, other data on Thursday showed that the number of Americans filing new claims for unemployment benefits increased more than expected last week, another sign that what has otherwise been considered a tight labor market is easing, up as higher borrowing costs, for which the Federal Reserve has triggered in its monetary policy path to date, has dampened demand in the economy.
The data suggests that expectations are rising that the Federal Reserve will end its rate-hiking cycle. Fed funds futures traders now expect the Fed’s benchmark interest rate to reach 5.002% in June from 4.830%, and then fall to 4.278% in December.
BoE / Fed divergence in the making?
On the other side of the pound, a ONS report showed Britain’s GDP stagnated in February due to strikes by public workers but January’s growth was revised higher, suggesting the economy might avoid a recession in early 2023. The policy front is changing. There is a divergence in the Federal Reserve and Bank of England, which had been keeping GBP/USD under control. In order to fight inflation, the BoE is expected continue to increase interest rates. Huw Pill, chief economist, said last week that the central bank could not be certain it has increased interest rates sufficiently to curb inflation.