GBP/USD breaks above 1.34 for the first time since March 2023

• GBP/USD continues to rally against the pound on greenback weakness.
• US consumer sentiment data shows that US consumers are still wary of inflation.
• Markets tilted toward higher expectations of more Fed tapering.

GBP/USD extended sterling’s ongoing rally for another straight day, breaking above the 1.3400 handle and setting new 30-month highs after the US dollar weakened broadly on Tuesday. The greenback market spread gave Cable just what it needed to keep the sterling bull run in balance.

It will be a quiet show for the pound on the data file on Wednesday, although pound traders will be keeping an eye on comments from Megan Greene, a member of the Bank of England’s (BoE) Monetary Policy Committee (MPC). MPC member Greene will be speaking at the North East of England Chamber of Commerce.

The US side of Tuesday’s economic data is similarly underweight for the midweek session. August’s new home sales numbers are unlikely to push either way and will be followed by a speech by Federal Reserve Board of Governors (Fed) member Adriana Kugler, who will speak at the Harvard Kennedy School in Cambridge.

Consumer confidence deteriorated broadly on Tuesday, and consumer expectations for 12-month inflation accelerated to 5.2%. Consumers also reported a general weakening of the family’s six-month financial outlook, and consumer assessments of overall business conditions turned negative.

The waning consumer confidence results sparked a renewed bid in rate markets for a further cut in November. According to CME’s FedWatch tool, rate markets are pricing in a nearly 60% chance of a second 50bps rate cut on Nov. 7 and only 40% odds of a more reasonable 25bps rate cut. Rate traders priced in roughly equal odds of a 50-bps or 25-bps rate cut earlier in the week.

GBP/USD price

Cable buyers continue to shrug off all near-term warning signs, pushing GBP/USD deeper into overbought territory. The pair has gained over 3% over the past two weeks since the last swing low on daily candlesticks at the 1.3000 handle.

With price action trading north of 1.3400, short sellers face tough choices; while Cable looks increasingly appetizing for a quick play at the bottom, the lack of technical resistance means timing a short entry is too risky to bid directly against the still-healthy bullish momentum.

GBP/USD Daily Chart