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- GBP/USD kicks off the new week on a positive note amid sustained USD selling bias.
- The weakening confidence in the US economy continues to weigh on the buck.
- The divergent Fed-BoE expectations also act as a tailwind for the currency pair.
The GBP/USD pair edges higher at the start of a new week and trades just below the 1.3100 mark during the Asian session, well within striking distance of Friday’s swing high. Moreover, the bearish sentiment surrounding the US Dollar (USD) suggests that the path of least resistance for spot prices remains to the upside.
The initial market reaction to US President Donald Trump’s decision last week to pause sweeping reciprocal tariffs for 90 days turned out to be short-lived amid heightened concerns over a US recession on the back of the escalating US-China trade war. China’s 84% tariffs on US goods took effect on Thursday, while Trump hiked duties on Chinese imports to an unprecedented 145%. Given that the US still imports several hard-to-replace materials from China, the developments weaken confidence in the American economy. This, in turn, dragged the USD Index (DXY), which tracks the Greenback against a basket of currencies, to its lowest level since April 2022 and continues to act as a tailwind for the GBP/USD pair.
Meanwhile, data released last week showed that the US Consumer Price Index (CPI) contracted 0.1% in March while core CPI increased +2.8% year-on-year, below consensus expectations. This comes on top of worries about the potential economic fallout from an all-out trade war and further lifts bets that the Federal Reserve (Fed) will resume its rate-cutting cycle soon. In fact, markets are now pricing in 90 basis points of rate cuts by the end of this year. In contrast, investors see slightly less chance of a Bank of England (BoE) interest rate cut next month. This, along with signs of stability in the equity markets, turns out to be another factor undermining the safe-haven buck and lending support to the GBP/USD pair.
The aforementioned supportive fundamental backdrop validates the near-term positive outlook for spot prices, though bulls seem reluctant to place aggressive bets and opt to wait for important UK macro releases. The crucial monthly jobs report is due on Tuesday, followed by the latest consumer inflation figures on Wednesday. Apart from this, investors, this week will also confront the release of US monthly Retail Sales data and closely scrutinize Fed Chair Jerome Powell’s speech, which will play a key role in influencing the USD price dynamics. This, in turn, should provide some meaningful impetus to the GBP/USD pair during the latter part of the week.
