The GBP/USD pair has risen above the mid-1.3500s, reaching its highest point since February 2022. The British Pound is benefiting from strong UK Retail Sales figures and higher inflation data, which may affect the Bank of England’s decisions on monetary policy. On the other hand, the US Dollar is struggling due to worries about the budget deficit and expectations of further interest rate cuts by the Federal Reserve in 2025. These issues are pushing the USD down, helping the GBP/USD pair to climb.

Upcoming US Macroeconomic Data

Upcoming US data like Durable Goods Orders, Prelim GDP, and the PCE Price Index could influence the Federal Reserve’s interest rate decisions, affecting the USD and the GBP/USD pair. The Pound Sterling, being the oldest currency, accounts for 12% of foreign exchange transactions. The Bank of England’s decisions, especially on interest rates, have a major impact on the Pound’s value. Economic indicators such as GDP and trade balance also influence how strong the Pound Sterling is. This article shares information without encouraging specific investment actions, highlighting the need for individual research before making investment choices. It emphasizes that investing carries risks and that individuals are responsible for their decisions. The GBP/USD has risen past the mid-1.3500s, marking a level not seen since early 2022. This isn’t a random change; stronger-than-expected inflation and solid retail sales in the UK have fueled sentiments that the Bank of England might keep rates high for a while or be cautious before any cuts. Traders are considering that inflation pressures may last longer than anticipated, particularly in services and energy. Retail data shows that consumers are still spending despite rising borrowing costs. This indicates steady demand in the economy, which might delay any decisions on rate cuts. This scenario suggests the Pound could see further gains in the short term. However, it’s important to recognize that one strong data point can quickly alter expectations. In the US, the Dollar is under consistent downward pressure. Concerns about fiscal responsibility, especially the growing budget deficit, are contributing to this decline. Traders are worried about the long-term implications for yields and the overall attractiveness of US assets. Meanwhile, it’s becoming clearer that the Federal Reserve may begin easing in 2025, which adds to the Dollar’s weakness.

All Attention Now Turns To The Next US Data

All eyes are now on upcoming US data. The core PCE price index and revised GDP figures will be crucial in seeing if the market is getting ahead of the Fed. If inflation continues to ease while growth slows, the idea of rate cuts might become even more established in market positioning. This could boost interest in higher-yielding or more stable currencies, supporting the Pound in the near term. In our view, any weakness in the Dollar likely correlates with this data and expectations. Durable goods orders may be volatile, but downward surprises would reinforce existing policy speculations. As always, short-term positioning should be flexible, and any leverage should be carefully managed given the increased volatility around data releases. We should also note that the strength of the Pound isn’t only due to economic surprises. Some support comes from positioning; after a long period of underperformance, a structural adjustment seems to be occurring. This can last longer than usual market fundamentals suggest. Looking ahead, even small changes in trade balance or GDP expectations in the UK could impact currency movements more significantly than usual. Since rates are seen as near their peak, any signs of persistent inflation or stronger demand could heavily influence expectations of when easing might start. In the coming weeks, closely monitoring macroeconomic indicators and central bank statements will be crucial. The positioning bias is uneven; while shorting the Dollar is increasingly common, it carries risks, especially if hawkish sentiments arise or data unexpectedly improves. Rapid policy adjustments can happen, and recent history shows how quickly consensus can shift if numbers don’t align with expectations. It will be critical to manage exposure tightly and reassess risk levels at key technical points. We anticipate rising volatility around major data releases. Create your live VT Markets account and start trading now.

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