THE month of July kicked off with the 2024 United Kingdom general election which ended with a decisive victory for the Labour Party, with Keir Starmer taking on the role of prime minister. Market movement on that day was relatively muted as opinion polls had already predicted the Labour Party’s win and the market had factored it in days before the actual election.
Turning to economic indicators, the UK Consumer Price Index year on year (CPI yoy) dropped to the targeted 2.0 per cent in June, down from its previous peak of 11.1 per cent in November 2022. Despite this, the Bank of England (BOE) remains cautious about a possible rate cut at its upcoming September meeting, citing persistent strength in services inflation and wage growth as deterrents.
Meanwhile, in the US, the Personal Consumption Expenditures price index month on month (PCE mom) which peaked at 0.5 per cent in February, has been gradually decreasing in recent months. This trend is accompanied by a fall in US CPI (yoy) to 3.1 per cent in June from a peak of 7.5 per cent in September 2022, and is approaching the Fed’s targeted inflation of 2 per cent. Following these data releases, Federal Reserve chair Jerome Powell indicated a readiness to cut rates based on incoming data. The Dot Plot forecast provided by the Federal Reserve in June 2024 suggests the possibility of one rate cut by the end of the year.
Year to date, the GBP/USD currency pair is up by approximately 1 per cent. It previously peaked in the region of 1.3140 in 2023 and has since fallen over 8 per cent to around 1.2040. On the daily chart, GBP/USD is trading within a rising channel. This trend-line has been tested four times within the past two years since its breakout in 2022, and continues to hold strong. Currently, GBP/USD is retesting its yearly high at the first resistance level of 1.2850 (R1, red line). If the price manages to hold above R1, we might see GBP/USD test its second resistance of 1.3200 (R2, green line), which coincides with its 2023 year high.
In the longer term, GBP/USD is forming a triangle with the resistance level at R2 and the current uptrend line. If GBP/USD manages to break above R2 and remains above, it could rise further to the 1.3600 region. Coupled with the ongoing talks of a rate cut by the Fed this year and the uncertainty of a rate cut from the BOE, the probability of a continuation in the upward trend and breaking out of R1 remains high.
The writer is a forex dealer with Phillip Nova
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