Since the beginning of the week, the GBPUSD currency pair has been demonstrating a bullish trend against the backdrop of the falling U.S. dollar and Treasury bond yields. This dynamics is due to strengthening investor expectations regarding the possible cut in interest rates by the U.S. Federal Reserve (Fed).
The dollar index fell by 1.9% last week and another 0.5% during the current week, reaching 103.07. As emphasized by ANZ Bank analysts, investors are starting to sell U.S. dollars in anticipation of the Fed easing its monetary policy. Against this background, other currencies are receiving support.
According to the statement of the U.S. Treasury Secretary Janet Yellen, made on Monday, America managed to significantly reduce inflation, while maintaining a strong labor market and a stable economy.
In October, the U.S. annual consumer price index (CPI) fell to 3.2% from last year's peak of 9.1%. The Federal Reserve managed to achieve this by aggressively raising interest rates.
Hawkish monetary policy of the American central bank allowed to slow down the growth of consumer prices. However, the cost of many essential goods still remains higher than in the period before the COVID-19 pandemic.
Today, the markets are focusing their attention on the minutes of the Fed's latest meeting, which may clarify further actions of the regulator. Signs of slowing inflation in the United States have reinforced expectations that the central bank has ended its interest rate hike cycle.
Meanwhile, Bank of England Governor Andrew Bailey warned of a possible interest rate hike. He said food and energy costs could emerge as a risk factor for inflation. The food price index, which remains in double digits, could rise sharply again, Bailey added.
The comments were a rebuttal to previous statements by the representatives of the British regulator about cutting interest rates three times next year. Against this background, the British pound began to grow.
GBPUSD quotes went beyond the downtrend on the D1 time frame.
In terms of wave analysis, the price is currently forming the third ascending wave on the H1 timeframe. It has already broken through the top of the first wave at the level of 1.2505. The upward movement may intensify in the near term.
Short-term prospects for GBPUSD suggest buying.
The target is at the level of 1.2720.
Part of the profit should be taken near the level of 1.2615.
A stop-loss could be placed at the level of 1.2360.
The bullish trend is short-term, so trade volume should not exceed 2% of your balance.