GBPUSD Rallied Higher, Then Fell Heavily During the NA Session

The GBPUSD currency pair was trading down over 17 pips as the US dollar strengthened against the Sterling pound in the early American session. The currency pair had traded higher earlier today during the Asian and London sessions ahead of the North American session when it started falling.

The pound has generally been stronger than the US dollar despite the recent pullback that started mid-July when the pair reversed course and headed lower. Most analysts are predicting that the pair shall rally higher in future as the monetary policy divergence between the Bank of England and the Federal Reserve increases.

The BoE is expected to hike interest rates in its September monetary policy meeting, while the Fed is expected to keep rates stable as inflation in the US subsides. The policy divergence between the two central banks could boost the Sterling pound, forcing the pair to recoup most of its recent losses. 

The cable’s rally earlier higher today was primarily driven by the upbeat investor risk sentiment given the lack of significant releases from the UK docket. However, the trend changed later as the pair started falling against a stronger dollar.

The currency pair has been trading sideways for a few weeks as buyers and sellers remain undecided regarding the air’s direction. Investors look forward to critical events such as a much-awaited cabinet reshuffle by UK Prime Minister Rishi Sunak. 

The cabinet reshuffle is deemed necessary as the UK prepares for next year’s elections as the ruling Conservative Party’s popularity with voters remains at an all-time low. The party will seek to garner favour with voters in the coming months, including appointing popular leaders to government positions. 

Given the latest upbeat inflation data, investors hope the BoE will keep hiking rates to bring inflation down to its target of 2%. Strong wage growth has allowed households to spend heavily and core inflation to remain stubborn. 

UK core inflation remains steady at 6.9%, marginally lower from its peak of 7.1%. Headline inflation fell sharply to 6.8% from June’s figure of 7.9%. Meanwhile, Fitch said that the UK's energy and food inflation would likely fall further in the coming months due to base effects.

The GBPUSD price chart.

The GBPUSD currency pair was trading down 17.8 pips (0.14%) at writing as the dollar gained against the pound.