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During the Asian session on Tuesday, GBP/USD was trading around 1.2960, still close to the 13-month high of 1.2995 recorded in the previous session. Sterling (GBP) is likely to rise further as investors view the UK market as a more attractive investment destination compared to the US market which faces political uncertainty. Keir-Starmer’s Labor Party’s decisive victory in the general election ensured stable fiscal policy and smooth ministerial appointments.
Increased uncertainty over the Bank of England’s (BOE) interest rate cut schedule is an important factor in the strength of the pound. Traders expect the Bank of England to initiate rate cuts at its August meeting.
Traders are awaiting economic data to be released on Wednesday that could influence the Bank of England’s monetary policy stance. Consumer prices (year-on-year) are expected to hold steady at the Bank of England’s 2% target, with core inflation expected to fall to 3.4%. Additionally, the retail price index is likely to fall, marking the fourth time the indicator has fallen in five months.
Former U.S. President Trump escaped assassination last Saturday, triggering a rise in risk aversion and a strengthening of the U.S. dollar (USD). However, cooling U.S. inflation, bolstering bets on a rate cut by the Federal Reserve in September, could limit the dollar’s upside.
According to the CME Group’s FedWatch Tool, markets are currently pricing in an 85.7% chance of a 25 basis point rate cut at the September meeting, up from 71.0% a week ago.
