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Market Analysis

The increasing likelihood of a September rate drop by the Fed causes the GBP/USD to surge toward 1.2800
Amos Simanungkalit · 12.3K Views

15

During early European trading hours, GBP/USD hovers around 1.2770, marking its second consecutive day of gains on Friday. This upward movement in the pair can be attributed to growing expectations that the US Federal Reserve (Fed) might cut interest rates in September.

According to the CME FedWatch tool, the market is now fully anticipating a quarter-point rate cut by the Fed in September. Furthermore, the declining US Treasury yields are putting additional downward pressure on the US Dollar, with yields currently at 4.01% and 3.97%, respectively.

On Thursday, Kansas City Fed President Jeffrey Schmid suggested that easing monetary policy could be "appropriate" if inflation remains subdued. He mentioned that the Fed's current stance is "not that restrictive" and, while close to its 2% inflation target, the goal has not yet been fully reached, as reported by Reuters.

Meanwhile, the British Pound (GBP) faced headwinds after the Bank of England (BoE) recently decided to cut interest rates from a 16-year high. The BoE reduced rates by a quarter-point to 5% following a narrow vote among policymakers, who were split on whether inflationary pressures had sufficiently subsided.

The GBP/USD pair’s upward momentum could be capped by increased safe-haven demand due to escalating geopolitical tensions in the Middle East. Israeli forces intensified airstrikes on the Gaza Strip, leading to at least 40 fatalities on Thursday, according to Palestinian medics.

This escalation has deepened the conflict between Israel and Hamas-led militants, as Israel braces for the possibility of a wider regional conflict following the targeted killings of senior members of Hamas and Hezbollah.

 

 

 

 

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

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