GBP reaches 2 month high against USD

The Pound surged to a two-month high against the US Dollar on Tuesday, while staying largely rangebound against its other major currencies.

Due to a lack of macroeconomic releases, fluctuating speculations about Bank of England interest rate cuts are driving volatility in Sterling.

Since the confirmation of a UK general election last week, markets have been speculating whether this could delay the Bank of England’s unwinding cycle, as the central bank shifts its focus elsewhere. Additionally, the latest retail data from the Confederation of British Industry exceeded expectations, bolstering hopes that the UK economy will continue to recover throughout the second quarter of 2024.

The CBI’s retail sales balance hit its highest level since December 2022, rising to 8 in May, a significant increase from the previous month’s -44, and surpassing the market forecast of -24.

Sterling faces a lack of significant macroeconomic releases in the coming days, likely leaving it vulnerable to market risk dynamics and fluctuating BoE rate cut bets. Any aggressive trading is anticipated to bolster GBP against its safe-haven counterparts, while bleak trading conditions may lead to the Pound weakening against its safer counterparts.

There are some significant data releases for the US, notably the core PCE price index, scheduled for release on Friday.

As the preferred measure of inflation for the Fed, markets will be keen to evaluate the latest inflationary trends in the US, as any decrease in inflation is likely to unsettle the greenback amidst heightened expectations of Fed rate cuts.

Conversely, additional indications of persistent domestic inflation could support the recent influx of hawkish commentary from Fed officials, resulting in investor backing for the USD.

Moreover, a wave of Fed policymakers are scheduled to speak throughout the week. Further indications that the central bank is inclined towards a tighter monetary policy stance may strengthen the USD ahead of Friday's highly anticipated inflation data.

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