GBP/USD Remains Near Lowest Level Since Early May

GBP/USD rebounded slightly from a near one-month low near 1.2600 on Friday, but it was difficult for GBP/USD to continue the rebound and remained in a narrow range on Monday. GBP/USD currently seems to be supported below the 1.2700 round mark and may fall further on the influence of bullish sentiment on the US dollar.

In fact, the US dollar index (DXY), which tracks the performance of the US dollar against a basket of currencies, has risen to near its highest level since early May after the hawkish words of the Federal Reserve (FED) last Friday. In the so-called “dot plot”, policymakers expect only one rate cut in 2024, while the expectation in March was that the Fed would cut interest rates three times. This still supports the rise in US Treasury yields and acts as resistance to GBP/USD, confirming the bearish outlook for GBP/USD.

Nevertheless, the US consumer and producer price data released last week were weaker than expected, indicating that inflationary pressures are retreating. In addition, the unexpected decline in US import prices further boosted the outlook for domestic inflation, and together with the sharp deterioration in US consumer sentiment in June, the prospect of the Federal Reserve initiating rate cuts in September and another rate cut in December remains. This may limit the dollar’s gains and help limit the decline of GBP/USD.

At the same time, market participants expect that more persistent price pressures in the UK may force the Bank of England (BOE) to keep interest rates at current levels for a little longer. This may prevent bearish traders from making aggressive bets on the pound before the UK inflation announcement this week. In addition, investors should also be cautious about the upcoming UK general election on July 4 to avoid further depreciation of GBP/USD.

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