GBPUSD - FIRST STEP IS SHORT

GBP/USD capitalized on the overall weakness of the US Dollar (USD) on Monday, reaching its highest level in a month above 1.2590. However, the pair is likely to encounter resistance at 1.2600, and there is a possibility of a downward correction before the next upward movement.

The optimistic market sentiment at the start of the week has prevented the safe-haven USD from maintaining its strength against its main rivals. This has provided support for GBP/USD to remain in positive territory. In the European session, the UK's FTSE 100 Index rose by 0.3%, while US stock index futures recorded gains ranging from 0.1% to 0.3%.

Earlier in the day, the Pound Sterling received a boost from hawkish comments made by Bank of England (BoE) policymaker Jonathan Haskel. In an article published in The Scotsman newspaper, Haskel expressed the importance of addressing the risks of inflation momentum and did not rule out the possibility of further interest rate hikes.

On Tuesday, the UK's Office for National Statistics is set to release labor market data. It is expected that annual wage inflation, as measured by Average Earnings Excluding Bonus, will rise to 6.9% in April from 6.7% in March. Currently, the markets have fully priced in a 25 basis points (bps) rate hike by the Bank of England at the upcoming policy meeting on June 22. Therefore, if wage inflation turns out to be lower than anticipated, it may pose challenges for Pound Sterling to continue outperforming its competitors. Conversely, a stronger-than-expected reading could have a short-lived positive impact on the currency.

The release of May inflation data from the US and a speech by Bank of England Governor Andrew Bailey before the Lords Economic Affairs Committee hearing on Tuesday could also lead to significant fluctuations in the GBP/USD pair.

Nicola CEO of Forex48 Trading Academy