GBP/USD weekly chart
They are getting help from the added dollar selling this week, with the greenback now stumbling all across the board after the softer US CPI data yesterday. GBP/USD is now up 0.5% today to 1.3050 levels and a hold above the 1.3000 mark will give buyers more impetus in chasing a stronger move to the upside.
From a technical perspective, cracking through the 1.3000 mark as well as the 200-week moving average (blue line) of 1.2882 is a massive win for buyers and that will see little in the way of a potential push towards 1.3200 or even 1.3500 next.
While markets are still seeing the BOE needing to be more hawkish, the Fed is perhaps starting to see reason to pause and that is a divergence that could benefit cable even more than what we area seeing in the past two weeks.
However, just keep in mind that while the pound may look to benefit from that, it could end up being a double-edged sword.
Tighter financial conditions will weigh on the economy further and if inflation continues to stay on the high side, there is growing risks of a stagflation scenario. That will make it tough for the BOE to navigate a soft landing and as they continue to raise rates further, it increases the likelihood of a deeper downturn and possibly even something breaking in the economy.
For now, traders aren’t focusing too much on that but that is something worth considering that could limit sterling’s gains down the road.