British Pound Forecast: Bearish
- GBP/USD has soared above its previous durable range top
- It’s now back at seven-month highs
- Be aware though, that this is part of a ‘Dollar weakness’ story
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The Pound looks set to start a new trading week at more than seven-month highs against a United States Dollar broadly weakened by expectations that interest-rate cuts are surely coming. Federal Reserve Chair Jerome Powell has said that the US central bank is ‘not far’ from a place from which it could consider reducing borrowing costs which have ballooned since early 2022 in the fight against inflation.
The most recent US labor-market data saw GBP/USD gain, along with most other major currencies against the Dollar, as wage growth relaxed a little and the unemployment rate edged higher. None of last week’s US action has seen rate-cut expectations brought forward from the markets’ current favorite month, June. However, it has seen those expectations become a little more certain, hence the Dollar’s broad weakness.
The United Kingdom, meanwhile, has likely returned to uninspiring growth after what looks like a shallow recession in the second half of last year. The country faces the prospect of new political leadership this year, with the ruling Conservative Party badly lagging in the polls. Still the Pound garnered some support from the UK’s Spring Budget and markets seem prepared to believe that, whichever party wins, some fiscal discipline will have to be maintained.
The UK’s inflation rate is trending lower and the country is no longer quite the alarming outlier it was here. However, at 4% the annual rate remains double the Bank of England’s target, and the overwhelming likelihood must be that US interest rates will come down before domestic ones, and possibly quite a long way before.
The coming week’s trading cues will probably be dominated by the US, with official inflation, retail sales, and consumer sentiment data on tap.
However, the UK has monthly Gross Domestic Product data on tap Wednesday, with employment numbers coming up the day before.
Sterling does look a little overextended at present and, although it may not fall back very far in the coming week, some consolidation would hardly be a surprise.
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GBP/USD Technical Analysis
GBP/USD Daily Chart Compiled Using TradingView
GBP/USD has surged out of the broad and quite elevated trading range which has contained trade since late November 2023. The Pound looks capped for the moment by psychological resistance at 1.29, a mark not seen since last August. Interestingly the past few days’ trade has seen GBP/USD rise comfortably above the downtrend in place since the fifteen-month peaks of mid-July. That trendline now offers support at 1.27005.
Still, the Pound is unsurprisingly starting to look quite overbought and some consolidation would seem likely, even if that just puts GBP back into its prior range. The top of that range now offers support quite close to the market at 1.29148, with Feb 2’s intraday high of 1.27661 likely in focus below that.
The market still looks very solidly underpinned by the first Fibonacci retracement of the rise up to those July peaks from the lows of September 2022. That comes in at 1.24970 and seems likely to hold off any bearish assaults.
–By David Cottle for DailyFX