GBP/USD interbank has pushed through the 1.3000 barrier, trading at a 15 Month High.
For the fourth consecutive day, the USD has sustained a downward trend when compared to other prominent currencies. This ongoing decline follows the release of the most recent inflation report.
In June, the US Consumer Price Index (CPI) witnessed a decline to 3% year-over-year, down from May's 4%. Although slightly below the market's anticipated figure of 3.1%, this drop reveals a moderation in inflation. Additionally, the core CPI, which excludes the volatile costs of food and energy, decreased from 5.3% to 4.8%.
As a result, traders are now speculating that the Federal Reserve's tightening cycle may conclude earlier than initially predicted.
Could the recent developments in the United States potentially bring an end to the GBP's strong performance as the best-performing major currency in 2023? GBP's rally has been driven by elevated expectations of the Bank of England's Bank Rate and rising yields. However, certain factors may impact this trend.
The decrease in UK yields suggests that the anticipated peak in the Bank of England's Bank Rate could be lower than previously expected, which, in turn, exerts downward pressure on UK bond yields.
Nevertheless, it is premature to determine whether the GBP's rally against the EUR & USD has reached its conclusion. Much will depend on the upcoming release of UK inflation data next week. A significant undershoot of market expectations in this data release could deflate UK rate expectations and impact the GBP's performance.
Currently, the UK maintains a considerable bond yield advantage over the Eurozone, indicating that the GBP/EUR exchange rate may remain elevated in the coming weeks. However, breaking the recent highs near 1.1750 might present a challenge in the near term.
Consolidation above GBP/USD 1.30 will likely open a higher trading range for GBP against the USD.
