The British pound has been one of the top-performing currencies because of the overall performance of the UK economy this year.
- Sell the GBP/USD pair and set a take-profit at 1.2500.
- Add a stop-loss at 1.2700.
- Timeline: 1-2 days.
- Set a buy-stop at 1.2660 and a take-profit at 1.2750.
- Add a stop-loss at 1.2550.
The British pound is hanging close to a 12-month high as investors turn bullish on the currency ahead of the upcoming Bank of England decision. The GBP/USD pair jumped to a multi-month high of 1.2680, which was more than 20% above the lowest point in 2022.
The British pound has been one of the top-performing currencies because of the overall performance of the UK economy this year. This performance has been helped by falling energy prices as evidenced by the tumbling natural gas costs. Natural gas prices have slumped by over 70% from their highest point in 2022 while crude oil prices have eased to about $72 per barrel.
In the fourth quarter of 2022, most analysts were expecting that energy costs would surge this year. Analysts at Citigroup were expecting that the country’s inflation would surge to 18% this year. Therefore, the GBP/USD pair has done well because these fears have not materialized. Instead, GDP numbers have been better than expected even as inflation has remained above 10%. In a note, analysts at Goldman Sachs said:
“Essentially, we think that the same factors that acted as headwinds on sterling in 2022 — mostly natural gas prices and the relative stance of BoE policy — have turned to tailwinds.”
The main catalyst for the GBP/USD pair on Thursday will be the upcoming interest rate decision by the BoE. Analysts, using the bank’s guidance, expect that the bank will hike rates by 0.25% just as the Fed and ECB did last week. The swaps market also shows that the bank has two more hikes to implement.
On the other hand, analysts expect that the Federal Reserve has reached its peak hikes because inflation is falling. On Wednesday, data showed that American inflation dropped to 4.9% in April.
The GBP/USD pair has done well in the past few months. It has now moved to the upper side of the ascending channel on the four-hour chart. The pair has also moved above the 25-period and 50-period exponential moving averages. Further, the pair flipped the support at 1.2548 (April 14 high) into a support ahead of the BoE decision.
Oscillators like the Relative Strength Index (RSI) and the MACD have moved sideways. Therefore, the bullish trend will likely continue in the long term. But for Thursday, I expect the pair to retreat to the lower side of the channel at 1.2500.
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