GBP/USD Rises Toward 1.2750 Amid Positive Market Sentiment

27 jun 2023

GBP/USD is experiencing an upward trend, edging closer to the 1.2750 mark, as a positive sentiment dominates the market during the European morning on Tuesday. The pair is benefitting from a buoyant mood in the market and a generally subdued performance of the US Dollar. The focus now turns to the upcoming US Durable Goods and housing data, which will be closely watched.

After experiencing a decline to around 1.2700 during Monday's Asian trading hours, GBP/USD has managed a modest recovery, pushing towards the 1.2750 level. However, the technical outlook for the pair suggests a lack of strong upward momentum. As the day progresses, the pair could face downward pressure if safe-haven flows dominate the financial markets.

Reports indicate that the British government intends to disregard certain recommendations from pay review bodies regarding wage increases for the public sector. The government is concerned about the potential for a wage-price spiral and its impact on inflation. John Glen, Chief Secretary to the Treasury, stated in an interview with Sky News that while pay review bodies play a significant role in resolving pay issues, the effect on inflation must also be taken into account. In response, Kate Bell, Assistant General Secretary of the Trades Union Congress (TUC), argued on BBC Radio that public sector wages have fallen considerably behind inflation and criticized the potential decision to reject the recommendations as politically motivated.

While limiting wage increases theoretically helps the Bank of England (BoE) control inflation, such a decision could lead to union strikes and further complicate the UK economy's current challenges. Consequently, the uncertainty surrounding this issue may dissuade investors from engaging with Pound Sterling.

On Monday, the US economic calendar lacks any significant high-tier data releases, leaving market participants focused on risk perception. Following a sharp decline on Friday, a negative opening in Wall Street and continued downward movement in major equity indices are likely to support the US Dollar and exert downward pressure on the GBP/USD pair. Despite this, some market participants maintain a positive outlook for GBP/USD, suggesting a continuation of the upward trend as the price rebounds on the dynamic trendline.