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GBP/USD Flat in Holiday-Thinned Trading

  • US markets closed for bank holiday
  • US debt ceiling agreement reached

GBP/USD has started the week quietly. The pound is currently trading at 1.2342, almost unchanged. With US markets closed for Memorial Day, I expect little movement from GDP/USD during the day.

US debt ceiling crisis averted

After weeks of uncertainty, the US debt ceiling crisis appears over. The US has never defaulted on its debt, so one could argue that the crisis was manufactured by lawmakers who were intent on playing a high-stakes game of brinkmanship. The uncertainty jarred the markets, as risk sentiment fell and US yields and the US dollar moved higher. There’s little movement in the markets today with US markets closed, but we could see a reaction to the debt ceiling agreement on Tuesday. The agreement now moves on to Congress, where it is expected to be approved.

Sticky inflation could extend rate cycle

Will the Fed pause its rate hikes in June? Just a few weeks ago, the markets had projected a pause at 64%, but that has changed due to hawkish messages from the Fed and higher-than-expected inflation on Friday. Headline PCE price index climbed 0.4% on the month, versus an estimate of 0.0%, while the core reading jumped 0.8%, double the estimate.

The markets have now priced a 25-basis point hike at 64%, with a 36% probability of a pause, according to CME’s FedWatch. The US economy has been extremely resilient in the face of rising hikes and the Fed may have to tighten further, complicating its hopes of a soft landing for the economy.

GBP/USD Technical

  • 1.2377 is a weak resistance line. Above, there is resistance at 1.2446
  • 1.2281 and 1.2212 are providing support

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