GBP/USD remains firmly above 1.3400, highest level since March 2022

• GBP/USD rises for a fifth straight day and climbs to a new 20-month high.
• A combination of factors continue to weigh on the USD and provide support to the pair.
• The BoE’s relatively dovish stance supports the GBP and contributes to the rise.

GBP/USD is building on recent gains over the past two weeks and is advancing to its highest level since March 2022 around the 1.3430 region during the Asian session on Wednesday. Meanwhile, the fundamental context suggests that the path of least resistance for spot prices is to the upside, although slightly overbought conditions on the daily chart warrant caution for bullish traders.

The British pound (GBP) continues to draw support from expectations that the Bank of England (BoE) rate cut cycle is more likely to be slower than in the United States (US). In fact, BoE Governor Andrew Bailey said on Tuesday that the path for interest rates will be downward, although progress in that direction will be slow and unlikely to fall to ultra-low levels without very large shocks. Instead, markets priced in more aggressive policy easing by the Federal Reserve (Fed), which is keeping the US Dollar (USD) depressed near YTD lows and acting as a tailwind for the GBP/USD pair.

According to CME Group’s FedWatch tool, markets are currently pricing in a more than 75% chance that the Federal Reserve will cut interest rates by another 50 basis points in November. Adding to this, weaker US macro data from Tuesday, along with the prevailing risk environment, continues to undercut safe-haven money and validates the short-term positive outlook for GBP/USD. That said, the Relative Strength Index (RSI) on the daily chart has climbed beyond the 70 mark, making it prudent to wait for a near-term consolidation or pullback and modest positioning for any further appreciation moves.

Moving forward, there is no relevant economic data on market movement due out from the UK on Wednesday. That said, a scheduled speech by BoE MPC member Megan Greene could influence the GBP and provide a boost to the GBP/USD pair. Later in the opening session in North America, US new home sales data could help produce short-term trading opportunities. Still, traders may refrain from placing aggressive bets ahead of speeches by influential FOMC members this week, including Fed Chairman Jerome Powell on Thursday and the US PCE price index on Friday.