After Fed Chairman Jerome Powell made it clear that there would be no four interest rate hikes, market participants shifted their focus from their number to the timing of rate increases.
Against this background, rumors began popping up that the US Federal Reserve would not stick to the previously announced plan, and the first rate hike would come in January instead of April.
Naturally, due to surging inflation. However, the latest data showed that inflation rose by 7%, while all assumptions regarding the timing of rate hikes were based on a 7.1% increase. The difference is not significant but still distinct.
It turns out that inflation is growing slower than the Fed expects. Therefore, the regulator has no reason to rush to take appropriate measures. If interest rates remain unchanged shortly, the US dollar will hardly gain value.
Thus, one can conclude that the market is currently being driven by factors directly related to the United States, including statements or macroeconomic reports. Statistics from other countries are irrelevant to the market.
Today, traders may take notice of data on jobless claims. The number of Americans filing new claims for unemployment benefits is anticipated to increase by 8,000, while the number of continuing claims is forecast to rise by 6,000.
Although this growth seems insignificant, the very fact of an increase in the number of jobless claims is important. Market players may see it as a negative factor, significantly reducing the attractiveness of the US currency.
Against this background, the pound sterling has every chance of extending gains, although the time is ripe for a rebound and a local correction.
Data on producer prices to be released today will hardly have a severe impact on the market, even though the index is expected to rise to 9.8% from 9.6%. This no longer matters after yesterday’s inflation report, although it indicates their further upside potential.
However, the producer price index is unlikely to affect the timing and pace of a rate hike since the Fed already assumes that inflation rates could slow down by the end of this year.
The GBP/USD pair gained value and broke through the resistance level of 1.3600. This led to an increase in the volume of long positions, despite the pound sterling’s overbought status. The RSI is above the 70 line on the four-hour chart, indicating bullish market sentiment.
According to the daily chart, the price is paring losses incurred in June-December last year. At the moment, the pound has recovered by 50%, which casts doubt on a downward scenario.
Outlook
Although the pound sterling is overbought, its inertial move is still relevant in the market. If the price consolidates above the 50% Fibonacci level (1.3710), it will most likely head towards the area of 1.3800-1.3835.
An alternative scenario suggests a temporary stagnation around the level of 1.3700, followed by a technical pullback. Comprehensive indicator analysis signals that it is possible to buy the pair on the short-term, intraday, and medium-term charts.