GBP/USD consolidates above mid-1.2900s; remains close to multi-month peak set on Thursday
GBP/USD struggles to gain any meaningful traction on Friday amid mixed fundamental cues.
A modest USD uptick caps the upside, though the divergent Fed-BoE outlook lends support.
Spot prices, meanwhile, remain on track to register modest gains for the third straight week.
The GBP/USD pair lacks any firm intraday direction on Friday and oscillates in a narrow trading band, around the 1.2960 area during the Asian session. Spot prices, however, remain close to the highest since early November – levels beyond the 1.3000 psychological mark touched on Thursday – and remain at the mercy of the US Dollar (USD) price dynamics.
The Federal Reserve (Fed) maintained its forecast for two 25 basis points rate cuts in 2025 at the end of March policy meeting on Wednesday and gave a bump higher to its inflation projection. Adding to this, the uncertainty surrounding US President Donald Trump's trade tariffs and escalating geopolitical tensions underpin the safe-haven Greenback and turns out to be a key factor acting as a headwind for the GBP/USD pair.
The USD Index (DXY), which tracks the Greenback against a basket of currencies, looks to build on a modest recovery from a multi-month low touched earlier this week, though any meaningful appreciation still seems elusive. Investors remain worried about a tariff-driven slowdown in the US economic activity, which, in turn, might force the Fed to resume its rate-cutting cycle sooner than expected.
The markets now currently pricing in the possibility that the Fed would lower borrowing costs in June, July, and October. In contrast, the Bank of England (BoE) warns against assumptions for cuts and also increased its forecast for a peak in inflation this year. This suggests that the UK central bank will lower borrowing costs more slowly than other central banks, including the Fed, lending support to the GBP/USD pair.
There isn't any relevant market-moving economic data due for release on Friday, either from the UK or the US. Moreover, the aforementioned fundamental backdrop suggests that the path of least resistance for spot prices is to the upside. Hence, any subsequent slide could be seen as a buying opportunity and is likely to remain limited. Nevertheless, spot prices remain on track to end in the green for the third straight week.
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