Testing its Highest Level in 10

The price of the pound witnessed a strong start to 2023 and outperformed all of its major peers in the first quarter, benefiting from a series of economic data that proved to be stronger than what analysts expected.

• The GBP/USD rose to a 10-month high against the dollar on April 4, as the British currency gained a strong start to 2023.
• For now, the outlook remains constructive as analysts estimate that April is a historically strong month for the pound, meanwhile, A positive technical setup indicates that any reversals are likely to be shallow.
• The GBP/USD gains reached the 1.2525 resistance level, its highest since June 2022, and it settles around 1.2495 at the time of writing the analysis, waiting for anything new.

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Commenting on GBP/USD’s performance, Jeremy Stretch, forex analyst at CIBC Capital Markets, said that, “We will look for continued buying interest on dips to 1.2225/35.”

The price of the pound witnessed a strong start to 2023 and outperformed all of its major peers in the first quarter, benefiting from a series of economic data that proved to be stronger than what analysts expected. The rise in interest rates at the Bank of England and the bank’s continued data-driven approach to more policy moves also added to the rally.

 For his part, George Vessey, an analyst at FX & Macro at Convera, said that “The British pound achieved its largest monthly rise since November last year against the US dollar, as narrowing spreads between the United States and Britain and better-than-expected British economic data fueled demand.”

Regarding the British currency, he added that “the pound sterling was crowned the best-performing currency in the first quarter of 2023, rising by an average of 3% against its peers in the Group of Ten.”

However, GBP/USD will soon hit a massive resistance area which must be overcome before it can breathe fresh air.

For his part, Kenneth Brooks, an analyst at Société Générale, said that: “The GBP/USD rebounded towards its highest level last December at 1.2450. This hurdle must be overcome to confirm the extension in the upward move.”

He adds that last week’s low at 1.2210/1.2190 has now become an important support area.

Although the British pound has seen some outperformance, most analysts maintain that any sustained bullish trend in GBP/USD after breaking the 1.24 level will largely depend on the USD side of the equation.

This week, all eyes will be on Friday’s US employment report for signs of a slowdown in the US economy. According to analysts, “there is no need to say that closing above 1.24 will be an important technical event.”

For the GBP, the first major domestic test comes with the release of employment and inflation data (18th and 19th respectively), which should be matched by the FX market’s reaction given that these numbers will determine the likelihood of another rate hike at the Bank of England in May.

According to the performance on the daily chart below, the bulls took control of the path of the stronger GBP/USD pair. Its recent gains moved the technical indicators towards strong overbought levels so far, the US dollar is still the weakest, and this path may depend on the positive US job numbers by the end of the week, which will save the dollar from collapse and vice versa. So far, the trend is upward, and the nearest resistance levels are 1.2560, 1.2630, and 1.2700, respectively.

On the other hand, over the same period of time, the move toward the support level of 1.2250 will be important for the bears to control the trend again. With GBP/USD trading above the range tops today, it will be necessary to see the bulls hold 1.2450 as fresh support. So far, we have a 4-hour close above the level, but a daily close would confirm the breakout. In general, a daily closing above 1.2450, followed by a subsequent daily closing above the level will confirm the bullish breach and open the door to levels such as 1.2670. Instead, a 4-hour closing below 1.2450 today would indicate weakness toward 1.2290 & 1.2200.

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