GBPUSD – 1H Chart
GBPUSD has pushed to new highs for the month above 1.26. The support at 1.2599 will be essential for the following path.
Traders are betting that the Bank of England will have to keep raising interest rates into next year to beat inflation. UK government bonds fell to their lowest levels since the 2008 financial crisis.
Money markets priced in a 50-50 chance that the BOE will raise rates as high as 6% by February. The latest move came after jobs data showed a sharp wage increase and a surprise fall in unemployment. The UK economy expects to add 162k jobs in the latest figures, but the number came in at 250k. That led to a 0.1% drop in unemployment, reversing a forecast gain.
The UK will now wait for Wednesday’s GDP growth figures, where a 0.1% gain or 0.5% year-on-year is what the market expects.
“Demand for gilts won’t return meaningfully until investors are confident that inflation is on a sufficiently downward trajectory and we are at — or at least close to — a peak in the Bank Rate,” said NatWest Markets. “The more that data surprises to the upside, the further into the future that demand gets pushed.”
Traders are also awaiting a big event for the US dollar with the latest Federal Reserve interest rate decision. Markets are widely expecting the Fed to pause its rate hike strategy to look further at recent data and the effects of a sharp tightening to 5%.
In June 2022, the US Consumer Price Index saw a high of 9.1% annually. Since then, inflation has fallen month-to-month. The latest data had the CPI at 4% annually, which is not quite at the Fed’s 2% target, but is very close.
Fed members Christopher Waller and Philip Jefferson recently discussed this week’s meeting. Waller said he is worried about a lack of progress on inflation and that although a pause is possible this week, an end to rate rises may be premature.
Jefferson said, “Skipping a rate hike at a coming meeting would allow the Committee to see more data before making decisions about the extent of additional policy firming.”