For two days in a row, the price of the GBP/USD currency pair is trying to rebound upwards, but its gain did not exceed the level of 1.2110. It then settled around the level of 1.2070 at the time of writing the analysis, waiting for any news. The strong gains of the US dollar against everyone following the announcement of the strong US jobs numbers. The stimulus to tighten the US Federal Reserve Bank’s policy pushed the sterling against the dollar GBP/USD towards the 1.1961 support level before yesterday, which is its lowest in a month.
Still, the British pound is expected to stabilize against the euro and the US dollar midweek as recent sell-offs hit extended levels and investors face a more optimistic outlook for the UK economy in 2023. That’s as the National Institute for Economic and Social Research (NIESR) released its latest forecast on Wednesday. for the British economy which found that the UK is likely to avoid a long-term recession in 2023.
It says in its latest quarterly economic assessment: “The UK is likely to avoid a ‘technological recession’ in 2023”.
According to trades, sterling fell against most major currencies last week amid new predictions from the Bank of England that the UK economy will fall into a relatively long, if shallow, recession in 2023, but new research from NIESR says the bank may be too pessimistic about the economy’s prospects.The independent think tank says gross domestic product growth will remain close to zero, which would be an improvement on recent IMF and Bank of England forecasts for a more pronounced contraction.
The Bank of England now expects UK GDP to fall by 0.7% in the year to the end of the first quarter of 2024. The latest NIESR forecast also revealed that UK inflation will remain above 3% at the end of 2024 and fall short of the Bank of England’s 2% target until the third quarter of 2025. This suggests that the Bank of England’s latest forecast for inflation to fall to around 1% over 2-3 years is too aggressive, something Monetary Policy Committee member Catherine Mann also warned against in a speech on Monday.
Sterling sold off last week as markets read the bank’s forecasts as suggesting they had finally done enough by raising interest rates to bring inflation back under control over a two-year horizon. The British central bank said in the monetary policy report “we expect inflation to decrease rapidly this year”.
The Bank’s guidance has encouraged investors to cut their bets on the Bank Rate peaking and raised expectations of a rate cut at the end of 2023. This has driven down UK bond yields and weighed on the British pound, which tends to track the difference between UK yields and those of the Eurozone and the US United but the NIESR report’s findings suggest the bank will have to deal with above-expected inflation readings over the coming months, meaning higher interest rates for longer.
Thus, such bullish data surprises could be consistent with a stronger sterling as it would boost UK bond yields relative to Eurozone and US yields. Sterling is the second worst performing major currency when tested over the course of a week due to the Bank of England’s guidance update last Thursday and a surprisingly strong US jobs report that suggested US interest rates will rise more than expected.
The British economy is tipped to bear the deepest downturn in the G7 by the International Monetary Fund and the Bank of England. The weak economic performance has prompted investors to bet that the Bank of England will soon end its interest rate hike cycle, making the pound a “sell” on the highs.
Today’s GBP/USD predictions:
- According to the performance on the chart for the daily time frame below, the GBP/USD currency pair is still in the phase of breaking the general downward trend.
- The approach and stability without psychological support 1.2000 will give the bears more momentum for further movement down and currently closer.
- The support levels for the currency pair are $1.1990 and $1.1865, respectively, and the latter level will move the technical indicators towards oversold levels.
On the other hand, and in the same period of time, the bulls will not have the opportunity to control the performance of the currency pair without returning to the vicinity of the resistance levels 1.2245 and 1.2380, respectively. It is still better to sell the sterling dollar than any rising level.
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