Market Analysis

The British Pound (GBP) continues its upward trajectory, reaching 1.2480 in Thursday's European trading session against the US Dollar (USD). This movement is primarily fueled by a significant correction in the value of the US Dollar and growing anticipation that the Bank of England (BoE) will postpone any rate cuts until their November meeting. Similar to the Federal Reserve's stance, the BoE is also expected to delay any rate adjustments, alleviating concerns about policy discrepancies between the two central banks.

One of the main reasons behind traders revising their expectations regarding early rate cuts by the BoE is the sluggish progress in inflation towards the targeted 2%. This slow inflation decline is attributed to consistent wage growth, as evidenced by the labor market report for the quarter ending in February, which revealed a steady 5.6% increase in Average Earnings including bonuses, surpassing the anticipated 5.5%.

To achieve the 2% inflation target, annual wage growth excluding bonuses needs to approach approximately 3.5%. Higher wage growth tends to exert inflationary pressure as businesses transfer labor costs to consumers, while households with increased disposable income typically stimulate overall economic demand.

From a technical perspective, the Pound Sterling is aiming to stabilize following robust buying activity around the key support level of 1.2400. The GBP/USD pair is rebounding from this level and is now setting its sights on surpassing the psychological barrier of 1.2500.

Despite this positive momentum, the short-term outlook for the Cable remains somewhat bearish due to the recent breakdown of the Head and Shoulder pattern and the decline of the 20-day Exponential Moving Average (EMA) near 1.2560. Furthermore, the 14-period Relative Strength Index (RSI) is currently fluctuating within the bearish zone of 20.00-40.00, indicating a prevailing downside momentum.

Paraphrasing text from "FX Street" all rights reserved by the original author.