Introduction
The GBP/USD currency pair has reached its highest level since early February thanks to a combination of supporting factors. In this article, we will take a closer look at these factors and what they mean for the forex market.
UK CPI Data
One of the main drivers behind the recent surge in GBP/USD is the strong UK Consumer Price Index (CPI) data. The latest CPI figures show that inflation rose by 0.7% in February, up from 0.4% in January. This increase was driven by higher prices for food, clothing, and household goods.
BoE Rate Hikes
The strong UK CPI data has lifted bets for more Bank of England (BoE) rate hikes. A rate hike occurs when a central bank raises interest rates in order to curb inflation. Higher interest rates can also make a currency more attractive to investors. With the UK CPI data pointing to rising inflation, traders are now pricing in a higher probability of a BoE rate hike in the near future.
Sterling Boost
The expectation of more BoE rate hikes has provided a goodish lift to the Sterling. The Sterling has been one of the best-performing currencies in the forex market in recent weeks, thanks in part to the BoE’s hawkish stance. The Sterling has also been boosted by the UK’s successful vaccine rollout and the reopening of the economy.
USD Selling Bias
Another factor that has supported the GBP/USD move is the prevalent USD selling bias. The USD has been under pressure ahead of the Federal Open Market Committee (FOMC) decision. Traders are expecting the Fed to maintain its dovish stance, which would keep interest rates low and the USD weak.
Conclusion
In conclusion, the GBP/USD currency pair has reached its highest level since February thanks to a combination of supporting factors. The strong UK CPI data has lifted bets for more BoE rate hikes, providing a boost to the Sterling. The prevalent USD selling bias has also supported the move ahead of the upcoming FOMC decision. However, as with any forex market movement, there are always risks involved. Traders should keep a close eye on upcoming economic data releases and central bank decisions, as they can quickly shift market sentiment. Nonetheless, the current bullish momentum of the GBP/USD pair is certainly a positive sign for Sterling investors.
