Pound to Dollar Rate Strengthens Reaching 2023 High
The Pound to US Dollar (GBP/USD) exchange rate has continued to climb, testing the 1.28 level and reaching its highest point since late April. As of Friday, June 16, the pair is quoted at 1.27829, remaining close to the daily opening levels.
Monetary Policy Divergence Drives Pound to Reach 2023 High Against Dollar
The surge in the GBP/USD exchange rate can play a role in contrasting the monetary policies of central banks. Lately, the banks have had a negative impact on the US Dollar. While the Federal Reserve hinted at further interest rate hikes, the European Central Bank (ECB) made the decision to increase rates by 25 basis points, with more hikes expected. The Bank of England (BoE) is also anticipated to tighten its policy, potentially considering a 50 basis points increase at its upcoming meeting. Additionally, higher-than-expected jobless claims in the US have eased the pressure on the Fed to raise rates, contributing to the weakening of the Dollar.
Meanwhile, the US Dollar rebounded from its one-year low against the Pound earlier in the week. The rally came after the Federal Reserve’s decision to keep interest rates on hold for the time being but signaled that the pause would only be temporary. Fed Chair Jerome Powell emphasized the continuation of the bank’s tightening cycle, aiming to bring inflation back within the target range. The Fed’s projections indicate the likelihood of at least two more 25 basis points rate increases in the coming months. The stronger-than-expected US retail sales data further supported the rebound in the USD exchange rates.
Fed’s Hawkish Stance and BoE Rate Hike Expectations Propel Pound US Dollar Exchange Rate
The Pound (GBP) maintained its recent gains, buoyed by hawkish expectations of a rate hike by the Bank of England. With inflation in the UK remaining high, the BoE may need to raise interest rates multiple times this year, and it could be some time before they consider cutting rates again. Former BoE Governor Mark Carney also emphasized that high-interest rates would persist for a while, reinforcing market expectations.
Looking ahead, the GBP to USD rate could face headwinds. The release of the University of Michigan’s US consumer sentiment index might cause an upward improvement. This positive sentiment could strengthen the US Dollar. On the other hand, with no notable UK economic data expected, the Pound movement will likely be driven by BoE rate speculation.
Technical Analysis Points to Overbought Conditions as GBP/USD Tests 1.28
Technical analysis suggests that GBP/USD is in a neutral/bullish state in the short term, with a correction possible if the 1.2800 level remains intact. The pair has reached multi-year highs above 1.2900, benefiting from the risk-positive market environment and selling pressure on the USD. However, the overbought conditions may lead to profit-taking before the weekend, potentially triggering a downward correction.
Analysts also point out that GBP/USD pair has longer-term upside potential. At the moment, the bullish price action on the weekly chart is supporting the pair’s rise. On one hand, the hawkish view from the Bank of England could maintain the support. However, there are downside risks as the market anticipates significant tightening in the coming months. A dovish rate hike could lead to a pullback in cable toward the upward-sloping trendline support.
