GBP/USD rises on Fed rate cut bets

• GBP/USD broke above 1.3200 on Wednesday amid risk-on sentiment.
• Fed rate call hopes are pegged to the ceiling as the market anticipates a 50bps rate cut.
• UK CPI inflation and the BoE rate are also in discussion this week.

GBP/USD topped out on a quiet Monday, kicking off the new trading week with a fresh bullish bid back above the 1.3200 handle. Investor sentiment remains firmly on the upside as markets brace for strong central bank action this week with a widely anticipated Fed rate cut and another appearance from the Bank of England (BoE).

US retail sales are scheduled for an update on Tuesday, but the key data point that would normally generate some level of volatility is not expected to move the needle this week unless the print doesn’t line up with forecasts. US MoM retail sales growth in August is expected to fall to 0.2% from July’s 1.0%, while MoM core retail sales (excluding auto purchases) are expected to fall to 0 .3% from 0.4%.

Forex Today: US data takes center stage pre-FOMC

On the UK side, consumer price index (CPI) inflation figures are due on Wednesday morning, with the annualized figure to August expected to hold steady at 2.2% year-on-year. Like US retail sales, the stand-alone figure is not expected to generate much of a market reaction as long as the print falls within a reasonable range of mid-market forecasts.

According to investors, the Fed launching a new cycle of interest rate cuts is almost a given, and now it comes down to a debate about how much, rather than when. According to CME’s FedWatch tool, rates traders are pricing in about a 60% chance that the Fed’s first rate cut in over four years will be a 50bps cut in the Fed funds rate, with the remaining 40% expecting a more modest 25bps cut . Rate markets are also pricing in a total of 125-150 bps of cuts by the end of the year, with interest rate traders seeing about an 80% chance that the Fed funds rate will hit a total of 400-425 bps by December 18 compared to the current one. interest rate of 525-550.

The BoE will also release its own rate call on Thursday, but it is expected to be a far less noteworthy outing than the Fed’s rate call. The BoE is expected to keep its key benchmark rate at 5.0% this week, with the Monetary Policy Committee (MPC) voting seven to two in favor of holding, compared with five to four quarter points. reduced the vote since the BoE’s last exit.

GBP/USD price

Cable’s 0.6% gain on Monday dragged the pair back above the 1.3200 handle, with daily candlesticks continuing to eat back to the upper side, with multi-year highs located north of 1.3250.

Despite an overall bullish bias, GBP/USD price action risks being caught in a bull trap, with the pair hot on the heels of a 1.66% technical recovery from the last swing to the 1.3000 handle.

GBP/USD Daily Chart