GBP/USD Maintains Bullish Outlook Ahead of Looming Fed Rate Cut

The Pound Sterling’s Resurgence

The Pound Sterling (GBP) has staged a remarkable comeback against the US Dollar (USD), surging to a five-day peak of 1.3214. This rally is primarily driven by the growing expectation that the Federal Reserve (Fed) will implement a substantial interest rate cut at its upcoming monetary policy meeting.
Bullish Momentum and Technical Indicators
The GBP/USD pair has exhibited strong bullish momentum, as evidenced by the Relative Strength Index (RSI). This technical indicator suggests that buyers are in control, driving the price higher. Additionally, investors’ strategic buying of the dip at 1.3001 has further fueled the rally.

Key Resistance Levels

If GBP/USD can successfully breach the recent high of 1.3239, the next significant resistance levels to watch are the year-to-date (YTD) high at 1.3266 and the March 2022 peak at 1.3298. A successful break above these levels could pave the way for a more extended upward trajectory.

Potential Pullback

However, if GBP/USD fails to maintain above 1.3200, a short-term pullback towards 1.3150 or even 1.3100 cannot be ruled out. Support levels below 1.3100 include 1.3044 and the July 17 high turned support.

Fed Rate Cut Expectations

The market is increasingly confident that the Fed will begin cutting interest rates on Wednesday. While the exact size of the cut remains uncertain, there is a growing consensus that it will be substantial. The CME FedWatch tool suggests a 61% probability of a 50-basis point cut.

Economic Indicators and Market Sentiment

Before the Fed’s policy announcement, investors will closely monitor the US Retail Sales data for August. A slowdown in consumer spending could temper expectations for a large rate cut.
On the UK front, the Pound Sterling will be influenced by the Consumer Price Index (CPI) data for August and the Bank of England’s (BoE) monetary policy decision. While economists anticipate inflation to remain elevated, market participants expect the BoE to maintain interest rates at 5% and deliver only one additional rate cut for the remainder of the year.

Overall Outlook

Given the current bullish sentiment and the expectation of a Fed rate cut, GBP/USD appears poised for further gains. However, it’s essential to remain cautious and monitor potential pullbacks. Investors should closely watch key technical levels and economic indicators to make informed trading decisions.