Route to sterling's 2024 high may be clearing
GBP/USD rallied to a 2-week high at 1.2730 after U.S. jobless claims and ADP showed more softness in the labor market than expected, which could help lift cable back toward its 2024 peak if subsequent data shows similar cooling.
The data supported recent comments on Tuesday by Fed Chair Jerome Powell, who acknowledged progress on inflation even though more data is needed before policymakers are sufficiently confident in the disinflation trend to cut rates.
Currently futures markets are pricing near 100% odds for a rate hold at the July 31 FOMC meeting, though September odds are moving slightly higher for easing.
But cable's rise to trend highs appears to take into account only the USD side of the GBP/USD equation. Futures show market expectations for the BoE are traveling a similar rate path to the Fed, which should keep the pound anchored near current levels.
Odds for a August BoE cut are at 56% but would increase if UK inflation continues its descent, putting downward pressure on the pound.
Currently, sterling has resistance at 1.2736, the 50% Fib of 1.2860-1.2613. A close above 1.2736, independent of any UK data that would exacerbate rate cut odds, is likely to lift GBP/USD toward the June 12 high at 1.2860 and the 2024 high struck on March 8 at 1.2894.
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GBP Chart: https://tmsnrt.rs/3xEBZsh
(Paul Spirgel is a Reuters market analyst. The views expressed are his own)
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