Bounce to Upside is Cautious

GBP/USD seems to have established a foothold above the 1.24 resistance in the recent trade and could rise further in the coming days and weeks, although the politics of the White House and Congress are much bigger upside risks than any of the appointments in the field. At the beginning of this week’s trading, the GBP/USD pair moved towards the resistance level 1.2480.

Overall, the US dollar was broadly bought last week but the US dollar closed lower in relation to the British pound, which outperformed all other currencies in the G10 basket while giving ground to the Russian ruble and Polish zloty on the G20 board. The gains were buoyed when a slow decline in inflation in Britain raised implied expectations for the Bank of England’s (BoE) interest rate, but the US economy and the potentially underappreciated risk of a technical debt default by the US government will be more important than this.

Commenting on the performance of the currency pair. “Expectations of a rate hike could support the pound around the 1.2500 resistance this week in the absence of any significant economic data out of the UK,” says Joseph Capurso, analyst at Commonwealth Bank of Australia. He added, “The US and US dollar interest rates will be affected by a variety of economic data released towards the end of the week. We estimate that the GDP for the first quarter of 2013 and employment costs will appear below expectations.”

The consensus among economists is that Bureau of Economic Analysis figures will show the US economy growing at an annual pace of 2% in the first quarter Thursday, down from 2.6% late last year. This indicates downside risk for the US dollar and upside risk for the British pound if the CBA team is over the capital with its forecasts. For his part, Ian Shepherdson, chief economist at Pantheon Macroeconomics, says: “People’s desire to drain some of the huge stock of excess savings that have accumulated during Covid has largely protected consumption from aggressive interest rate increases by the Fed.” But more than half of that stockpile has now been spent, and the rest is much more concentrated among people at the higher end of the income distribution.

Pantheon points to the possibility of a recession in the second and third quarters for the US – the second in as many years – but Friday’s readings of the labor cost index and the core personal consumption expenditures price index will be as important as the economic growth figures in the coming months. None of these developments will be nearly as relevant as developments in the White House and Congress, however, given widely reported declines in US Treasury tax collection and the resulting uncertainty about how long the government can continue to fund without Raising the legal debt limit.

• According to the performance on the daily chart below, the bulls’ movement to control the performance of the GBP/USD currency pair still lacks momentum to confirm more control.
• This requires moving the currency pair towards the resistance levels 1.2530 and 1.2600, respectively.
• Over the same period of time, the support level at 1.2370 will end any attempts to rebound upwards.
• I still prefer selling the currency pair from every upside.

The sterling/dollar currency pair will be affected by investor sentiment, the performance of global markets, the announcement of net borrowing by the British public sector, then the announcement of US consumer confidence and US home sales.

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