British Pound edges higher as hopes for Iran diplomacy cap hot US CPI-inspired USD rally
The GBP/USD pair edges higher during the Asian session on Wednesday, moving away from a one-and-a-half-week low, around the 1.3300 neighborhood, touched the previous day.
During the Asian trading session on Wednesday, the GBP/USD currency pair experienced a minor upward movement, transitioning from a low of approximately 1.3300 to a zone around 1.3350. Traders should exercise caution before committing to significant long positions, as fundamental factors warrant careful consideration. A potential resolution to the US-Iran conflict remains a positive catalyst for the GBP/USD pair, as it dampens the appeal of the US Dollar (USD) as a safe-haven asset.
This sentiment was reinforced by remarks made by US Secretary of State Marco Rubio at a G7 summit, who stated that there was no need for major military action in Iran. President Donald Trump's recent comments also echoed this sentiment, indicating that the US would maintain the current level of engagement in the conflict. The Bank of England's (BoE) hawkish stance, forecasting the possibility of additional interest rate hikes, further bolsters the British Pound (GBP) and the GBP/USD pair.
The US consumer inflation data released on Tuesday supported this narrative, indicating that the Federal Reserve (Fed) is likely to raise rates in December. Some Fed officials, such as Governor Christopher Waller, expressed a more aggressive tone, suggesting a possibility of a 50-basis-point (bps) rate increase. Waller's testimony demonstrated a strong inclination toward further tightening, with a 9/10 FXS Speechtracker score significantly higher than the 7.3/10 historical average.
This hawkish outlook and the Fed's willingness to hike rates have contributed to a rise in the FXS Fed Sentiment Index to 145.50, signaling a high probability of continued rate hikes and a stronger Dollar. Technical analysis indicates that the GBP/USD pair is currently trading just above the 50.0% Fibonacci retracement and the 200-period Simple Moving Average (SMA) on the 4-hour chart.
These levels provide a supportive foundation for the pair, with nearby resistance located at the 38.2% retracement and stronger barriers at the 23.6% level. A break below these levels could expose the 61.8% Fibonacci retracement at 1.3279, with further downside potential towards the 61.8% level at 1.3217 and 1.3138.
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