The GBP/USD pair surged unexpectedly after comments by Federal Reserve Chair Jerome Powell were interpreted by analysts and market participants as increasing the chances of a September rate cut. Stock prices rose and the dollar weakened broadly following Powell’s remarks at the European Central Bank’s forum on central banking, where he mentioned significant progress in inflation and indicated a possible rate cut if the labor market weakens.
Analysts are now speculating on the possibility of a rate cut by the Fed in September, leading to a decrease in confidence in the US dollar. The GBP/USD exchange rate rose to a resistance level of 1.2688 after Powell’s comments in Sintra, Portugal. Michael Brown, a senior analyst at Pepperstone, noted that Powell’s comments were slightly more dovish, hinting at a potential rate cut in September.
Powell emphasized that it is still premature to cut interest rates and more evidence on inflation and the labor market is needed. However, he also acknowledged the risks of keeping interest rates low for an extended period. The focus now shifts to the US jobs report on Friday, with a weaker-than-expected report likely leading to a further decline in the dollar.
In a related development, the US dollar rose amid increased chances of Donald Trump winning the US presidency, following a positive Supreme Court ruling. The GBP/USD exchange rate initially saw gains as investors bought European assets, but those gains were erased later in the day.
The FTSE 100 fell to its lowest level in more than two months, with Anglo American shares leading the decline. Sainsbury’s shares also fell after reporting seasonal weakness in its Argus business.
Technical forecasts for the GBP/USD pair indicate that the price is trying to avoid further decline below the support level of 1.2600. The currency pair’s success in avoiding further losses will depend on moving towards resistance levels of 1.2775 and 1.2830. Market sentiment will also be influenced by the minutes of the last US Federal Reserve meeting and the upcoming British elections.