GBP/USD re-approaches more than two-month high, bulls flirt with 100-day SMA near 1.2500

• GBP/USD moves higher for the second day in a row, supported by a weaker US Dollar.
• Dovish expectations from the Fed and optimism about Chinese stimulus weaken the dollar.
• Expectations that the Bank of England will begin cutting rates during the first half of 2024 could cap the pair’s gains.

The GBP/USD pair attracts some buying after an initial drop to the 1.2440 area on Monday and continues its steady rise during the early part of the European session. The pair is again approaching the psychological level of 1.2500, as the bulls now wait for a sustained move and acceptance above the 100-day SMA before opening new positions.

The dovish expectations from the Federal Reserve (Fed) maintain the selling bias of the Dollar, which in turn drives the GBP/USD pair higher for the second consecutive day. Investors now appear convinced that the US central bank has ended its monetary policy tightening campaign, and these expectations were reaffirmed by the release of a softer US CPI report last week. In addition, markets are pricing in the possibility that the Fed will begin cutting rates as early as March 2024.

The change in expectations about the Fed’s future monetary policy sent the 10-year US government bond yield to its lowest level in two months on Friday. Apart from this, the latest optimism over additional stimulus from China turns out to be another factor that undermines the safe haven status of the Dollar and lends support to the GBP/USD pair. Indeed, Chinese authorities have pledged to roll out more support policies for the country’s beleaguered real estate sector, boosting investor confidence.

With USD price dynamics proving to be the sole driver of the GBP/USD pair’s positive move, the bulls seem unfazed by the fact that markets expect the Bank of England (BoE) to begin cutting rates. of interest from its maximum of 15 years. In fact, interest rate futures have fully priced in a 25 basis point BoE rate cut by August 2024 and a second rate cut in November 2024. Furthermore, there is a greater than 50% chance of that the Bank of England begins the monetary policy relaxation cycle in June 2024.

In the absence of market-relevant economic releases from both the UK and US, the mixed fundamental backdrop makes it prudent to wait for a break through the 100-day SMA before opening new ones. bullish positions. Market participants now await scheduled speeches from BoE Governor Andrew Bailey and Richmond Fed President Thomas Barkin to take advantage of short-term opportunities later during today’s American session.

Technical levels to monitor