17 July 2024 | FXGT.com
GBPUSD Hits One-Year High as Strong Services Inflation Reduces BoE Rate Cut Expectations
- Sterling Performance: The British pound surged to its highest level in nearly two years against the euro and around a one year high against the dollar. The rally was driven by stronger-than-expected UK services inflation data for June, leading markets to scale back expectations for an August rate cut.
- Inflation Data: British inflation held steady at 2.0% year-on-year in June, slightly above the 1.9% expected by analysts. Services inflation, a key indicator for the Bank of England (BoE), was 5.7% year-on-year, compared to the anticipated 5.6%. Core inflation aligned with expectations.
- Market Reactions: Following the data release, rate futures indicated a roughly 30% chance of a BoE rate cut on August 1st, down from nearly a 50% chance before the inflation data. This shift in expectations highlights the influence of the stronger services inflation print.
- Fundamental Drivers: The key drivers for the GBP/USD pair include diminishing BoE rate cut expectations, resilient UK economic growth, and the anticipated Fed rate cut in September. These factors collectively support a bullish outlook for GBP/USD.
- Fed Rate Cut Expectations: Investors have fully priced in a September rate cut from the Federal Reserve, with expectations of over 60 basis points of easing by year-end. This sentiment supports the bullish outlook for GBP/USD.
- Upcoming UK Employment and Wages Data: Tomorrow’s UK employment and wages data, set to be released at 6:00 am GMT, will be critical for both the BoE and market traders. The data will provide further insight into wage growth and employment trends, influencing future monetary policy decisions.
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