GBP/USD consolidates near 15-month high, around 1.3130 area; bullish potential intact

• GBP/USD enters a bullish consolidation phase and trades just below the 15-month peak.
• Bets that the Fed will soon end its rate-hiking cycle undermine the USD and lend support.
• Expectations for further policy tightening by the BoE also contribute to limiting the slide.

The GBP/USD pair oscillates in a narrow trading band during the Asian session on Friday and consolidates its recent strong gains registered over the past two weeks or so, to its highest level since April 2022. Spot prices currently trade around the 1.3130-1.3125 region and the fundamental backdrop still seems tilted firmly in favour of bullish traders.

The US Dollar (USD) remains under some selling pressure for the seventh straight day and hits a fresh 15-month low in the wake of firming expectations that the Federal Reserve (Fed) is nearly done with its policy tightening cycle. The British Pound (GBP), on the other hand, continues to draw support from rising bets that the Bank of England (BoE) may need to raise interest rates further to combat high inflation. This should act as a tailwind for the GBP/USD pair and support prospects for an extension of the near-term well-established uptrend.

Investors seem convinced that the US central bank will hold interest rates steady for the rest of the year after the widely expected 25 bps lift-off in July. The bets were lifted by the US CPI report on Wednesday, which showed a further moderation in consumer prices. Adding to this, the US Producer Prices Index (PPI) recorded the smallest annual rise in nearly three years in June. This comes on the back of signs that the US labor market is cooling and should allow the Fed to soften its hawkish stance, which keeps the USD bulls on the defensive.

In contrast, the current market pricing indicates that the BoE could raise interest rates from the current 5% to a cycle peak of 6.5% to dampen demand and force inflation lower. The speculations were fueled by stronger UK wage growth data, which, according to BoE Governor Andrew Bailey and UK Finance Minister Jeremy Hunt, is harming the efforts to contain inflation. This, to a larger extent, helps offset the possibility of a recession in the UK later this year and suggests that the path of least resistance for the GBP/USD pair remains to the upside.

There isn't any relevant market-moving economic data due from the UK on Friday, leaving the major at the mercy of the USD price dynamics. Later during the early North American session, traders will take cues from the release of the Preliminary Michigan US Consumer Sentiment Index. This, along with the broader risk sentiment, might influence the USD and provide some impetus to the GBP/USD pair on the last trading day of the week. Nevertheless, spot prices remain on track to register strong gains and end in the green for the second straight week.

Technical levels to watch