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GBP/USD recently succumbed to a broad-based recovery by the greenback that is likely to cap any recovery attempt this week even if the pound itself manages to brave any further headwinds across the Atlantic over the coming days. During yesterday’s session, the GBP/USD rebounded, bouncing from the support level 1.1922 to the resistance level 1.2056, which is stable near it at the time of writing.
The pound rose against most other peers except the dollar last week after a sharp rebound in the February S&P Global Purchasing Managers’ Index indices as well as hawkish economic and monetary policy comments from Katherine Mann at the Bank of England. In addition, other data pointed to a less bleak outlook for the UK’s public finances just weeks after the March budget and at a time when inflation risks are still widely viewed to the upside, with potential repercussions on future bank rate hikes.
But the increase in the Fed’s preferred measure of inflation on Friday and other generally resilient economic data coming out of the US made the market focus on the upside risks to the federal funds rate and the US dollar with consequent negative implications for the GBP/ GBP/USD in recent trade.
Kit Juckes, chief forex strategist at Societe Generale, said in a Friday market commentary: “10-year bond yields are up 13 basis points over the week, and at the front end of the curve, market prices have risen to peak rates for this cycle of 5%. to 5.4%.
An improvement in Britain’s public finances could mean a risk of stimulus in the March budget and not quarreling with the notion that there is room for interest rate hikes further in the short term, although there could also be a threat from a political tailgating.
This is because the prospect of new negotiations on post-Brexit administrative arrangements for Northern Ireland could lead to parliamentary debate in the short term, despite the emergence of several MPC members and the busy US economic calendar as a highlight of the week.
Joseph Capurso, an analyst at the Commonwealth Bank of Australia, said: “Other BoE officials are speaking throughout the week. There are no significant domestic economic data releases in the UK this week. GBP/USD is likely to test the support at 1.1928 (200-day moving average) in the first part of this week’s trading.”
BoE policy and GBP factors aside, the GBP/USD rate week kicks off with Monday’s release of core durable goods orders for January in the US and a midday speech from Federal Reserve Chairman Philip Jefferson covering “recent inflation and the double mandate”.
Mid-week highlights such as the January Trade Balance and February Consumer Confidence figures followed by the appearances of several FOMC members and the recent releases of the Institute for Supply Management PMI surveys. Any sudden strength or resilience in any of these economic metrics is likely to encourage the recent advance in the dollar’s exchange rates and cap any recovery in the pound if it tries to rise above the nearby 1.20 resistance. For his part, Sean Osborne, chief forex analyst at Scotiabank, says: “The support is at 1.1930/40, where the 100- and 200-day moving average signals converge.” And “weakness below here is likely to indicate additional losses for the pound towards the key medium-term support at 1.1840.”
- According to the recent performance, the support level at 1.1915 is an important barrier for the GBP/USD bears.
- It then bounced several times, and at the same time the currency pair’s gains may face divergence in the future tightening policy of the Bank of England and the US Central Bank economic performance and investor sentiment.
- We still prefer to sell the currency pair from every bullish level and the closest rebound stations to the highest resistance levels 1.2145 and 1.2260, respectively.
On the other hand, stability will remain below the psychological support level of 1.2000, which will motivate the continuation of the bearish view of the currency pair’s performance. Today, the currency pair will be affected by investor sentiment, the performance of global markets, and the announcement of US consumer confidence.
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