Despite the recent attempts to rebound to the top of the GBP/USD currency pair, with gains towards the 1.2285 resistance level, it was subjected to quick selling operations. It reached the support 1.2178, before settling around the 1.2220 level at the time of writing. Sterling remains a target for selling. The currency pair may be affected by today’s announcement from the US Federal Reserve and the Bank of England on Thursday.
Sterling is the best-performing developed market (DM) currency in 2023 and is likely to say analysts at a major investment bank, despite pressure from the global banking sector. The pound sterling price entered March as the average performer for 2023, but it has seen an increase in its value in recent days as investors fear pressures in the global banking sector.
Commenting on this says Derek Halpenny, Head of Research at MUFG Bank. The outperformance comes as a surprise given that GBP is not traditionally associated with “safe haven” status; In fact during the 2008 financial crisis, it fell to a record low against the euro and other major peers. “The pound sterling is the best performing DM so far this year, and we are still constructive,” says Shreyas Gopal, strategist at Deutsche Bank.
Signs of banking sector stress in the US and Europe contrast with major UK banks staying away from the headlines, suggesting the sector is in good shape. For its part, the Bank of England said in a statement following news of UBS’ acquisition of its Swiss rival Credit Suisse: “The British banking system is well capitalized and funded and remains safe and sound.”
Global stock markets have fallen along with bond yields as investors fear a number of bank failures in the US and the dramatic failure of Credit Suisse. This is usually an environment that sees the pound lag as do the yen, franc, dollar and euro as “hot money” tends to flow out of the UK financial services sector when investor sentiment deteriorates. It makes sense that British banks were not a concern, the analysts add, “given that none of the major UK banks have been as badly managed as Credit Suisse or acquired a destabilizing large pool of fixed-income securities like SVB.
The pound is likely to reverse this situation.
Analysts also calculated: “It is astounding that the normally risk-sensitive pound sterling has been insulated from the fall in stocks.”
The GBP/EUR exchange rate rose above 1.14, after bottoming out at 1.12 earlier in March. The exchange rate of the pound against the dollar (the cable) at 1.2272, which is its highest level since February 02. The short-term cable relationship with US stocks declined negatively for a short period last week and reached its lowest level since the beginning of the Covid epidemic, as the pound sterling proved to be the least sensitive to risk among all the G10 currencies over the past few weeks.
Forex analysts at Goldman Sachs say that the pound sterling looks better against the euro and the dollar as they raise their outlook for the British economy and represent a more stable political environment. “The tide has turned on the unique weakness of the pound in our view,” says Kamakshya Trivedi, an economist at Goldman Sachs. He adds, “The drop in gas prices has relieved many of the unique pressures, as our economists no longer expect a technical recession, and the eased financial pressures are creating space for more spending but for debt reduction.”
- There is no change in my technical view of the performance of the price of the GBP/USD currency pair, only the performance on the daily chart below.
- The currency pair is moving in an ascending channel that was formed recently.
- The bulls may need to confirm control by moving towards the resistance levels 1.2330 and 1.2465, respectively.
- At the same time, it is enough to push the technical indicators towards overbought levels.
I still prefer selling the GBP/USD pair from every rising level. On the other hand, moving below the support level 1.2150 will end the recent attempts to rebound to the top. In addition to announcing central bank decisions, investor sentiment in global markets will have a direct reaction to the pound sterling.
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