- GBP/USD is struggling to gain meaningful traction and remains range bound.
- Recession fears have weakened the British pound, capping its topside as the US dollar rose slightly.
- A bet on less Fed rate hikes would be a headwind for the US dollar and help contain losses.
- Traders also seem reluctant to place aggressive bets ahead of the main US CPI report.
The GBP/USD pair sawsaw between slight gains and minor declines throughout the first half of Thursday’s European session and is currently trading in the mid 1.2100s, little changed for the day.
A bleak outlook for the UK economy has fueled speculation that the Bank of England (BoE) is nearing the end of its current rate hike cycle, weakening the British pound. Separately, softer risk tones have expanded support for the safe-haven US dollar, helping to cap the GBP/USD pair’s topside.
Investors are cautious ahead of Thursday’s release of the US Consumer Price Index (CPI) report as it will affect the Fed’s rate hike path. Federal Reserve policymakers remain committed to fighting high inflation, and interest rates may continue to rise longer until there is clear evidence that consumer prices are falling. indicates that there is
Meanwhile, slowing US wage growth signaled easing inflationary pressures, unleashing bets on a modest rate hike by the Federal Reserve, further weighing on spending and supporting Cable. Investors now seem confident that the Federal Reserve will soften its hawkish stance, leading to further declines in Treasury yields. This will be a headwind for the USD and support the GBP/USD pair.
Against the backdrop of mixed fundamentals, aggressive traders should be cautious and should position the GBP/USD pair towards a strong intraday direction. From a technical standpoint, too, with the recent all-important 200-day SMA breakout, it would be prudent to wait for a strong follow-through sell before confirming near-term highs.