The GBP/USD pair extended its gains for a second consecutive day, recovering from a three-week low near the 1.3000 mark reached on Wednesday. During the Asian session, the pair surged to the mid-1.3100s, reaching a new weekly high, buoyed by the weakened US Dollar (USD).
The US Dollar Index (DXY), which measures the Greenback against a basket of major currencies, fell to its lowest point in over a week. This decline follows increased speculation of a significant interest rate cut by the Federal Reserve (Fed), spurred by Thursday’s weaker-than-expected US Producer Price Index (PPI) report. Dovish expectations for the Fed have kept US Treasury bond yields near their 2024 lows, undermining the USD and providing a boost to the GBP/USD pair.
Despite concerns over potential rate cuts by the Bank of England (BoE), the British Pound (GBP) remains resilient. Recent data showing a slowdown in UK wage growth and stagnant GDP for July has not deterred GBP bulls, who believe that the BoE will implement smaller cuts compared to the Fed over the coming year. This perception supports the GBP and reinforces the GBP/USD pair’s upward momentum.
Looking ahead, the ability of GBP/USD bulls to sustain their gains may be tested as they await key central bank meetings next week. The Fed is set to announce its policy decision at the end of a two-day meeting next Wednesday, followed by the BoE’s crucial policy update on Thursday. These events are expected to significantly influence the GBP/USD pair and determine its future direction.
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