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GBP holds tight against USD, with a continuous uptrend

The price of the GBP/USD is increasing today for the fourth consecutive day. The price of the instrument has been increasing in value since the 15th of the month. After the US Dollar’s trend took a break against all other currencies, the Pound found further momentum from the UK’s monetary policy.

When analyzing an asset, we evaluate the price movement as well as the latest developments happening within the market. When looking at the price, we see that currently the pound is in control of the market, increasing by 0.21% today and 1.70% over the past week. However, when looking at larger timeframes we can see that the latest bullish price wave has only formed a corrective wave, meaning that the US Dollar can regain momentum to continue the Elliott Wave style trend.

GBPUSD - 26.07.2022.jpg

So why has the British Pound gained momentum over the past week?

Firstly, the price movement can be partially technical as the US Dollar has been increasing in value for weeks which can result in traders taking time out to re-evaluate the situation. However, the price is strongly being influenced by the conversative political party elections, Bank of England’s monetary policy and the Fed’s upcoming interest rate hikes.

Investors are watching the developments closely as uncertainty is known to lower demand within the market. The market will be looking closely to see how the Pound reacts. Last night, the two contenders to be the next UK Prime Minister went head on head on a 1 hour television debate. Mr Sunak and Mrs Truss, both ripped into each other with their view on how British politics should proceed over the next 3 years. According to polls, Mr Sunak is more popular with members of the public whereas Mrs Truss is leading the polls amongst the conversative party.

In addition to the above, British investors will be closely monitoring the Bank of England’s actions. So far the central bank has advised that inflation may continue to rise especially in the autumn and winter months. The central bank has not hesitated in confirming that interest rates will continue to increase and more restrictive measures may even be taken. The Bank of England is scheduled to confirm its Base Rate next Thursday where it is predicted that the Monetary Policy Committee will vote to increase interest rates.

What could tip the trend back in favor of the US Dollar? Well there have been no major economic events for the US Dollar over the past 24 hours but this is about to change. This afternoon the US is scheduled to release its Consumer Confidence Index and tomorrow evening the Fed will confirm its Fund Rate.

Investors' attention will mainly be on tomorrow’s Federal Fund Rate and whether the Central Bank will increase rates by 0.75% as expected. An increase of 1% is also a possible scenario, as some economists predict. It has been no secret that the Fed has been planning on increasing interest rates and this has been priced into the market. However, higher levels of volatility may be witnessed if the Fed decides to increase rates by 1% instead of 0.75%. Traders will be assessing how the US Dollar reacts to the announcement.

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