- The GBP/USD exchange rate sharply reversed its losses in the new year 2023 and may rise further this week if global markets benefit from last Friday's gains.
- Public statements from Federal Reserve officials and the latest US inflation figures pose potential risks to the recovery.
- The recent bullish rebound gains for the GBP/USD pair reached the resistance level of 1.2210, before settling around the level of 1.2190 at the time of writing the analysis.
Overall, the US dollar sold off heavily on Friday in favor of the pound and other currencies after a batch of data provided what may be a tentative indication of Federal Reserve policy starting to have the desired effects of softening the labor market and dampening the US economy.
Wage growth surprised notably on the lower side of expectations in Friday's non-farm payrolls report, while the Institute for Supply Management's (ISM) Purchasing Managers' Index (ISM) for December eased to join its S&P Global counterpart in warning of a recession. In the largest sector of the US economy. Overall, subsequent declines in US government bond yields and losses in the US currency lifted riskier assets including stocks and the pound sterling. Commenting on this, Mazen Issa, chief forex analyst at TD Securities, says: “Finally, today's deluge of data brightens the US dollar's rebound from this week.” “As for the US dollar, we believe it will be difficult to drive the renewed weakness ahead of the US CPI this week,” the analyst added.
Overall, the pound was trading at multi-month lows near 1.1850 earlier on Friday, but later recovered to the 200-day moving average at 1.2012 and looks set to hold mid-December highs above 1.24 entering this week's trading. This could be possible if China's official abandonment of coronavirus-related restrictions on international travel on Monday supports a continued recovery in global markets, but Tuesday's speech from Federal Reserve Chairman Jerome Powell and Thursday's US inflation data are potential influencers for the pound.
Economists on average are looking for US inflation to fall from 7.1% to 6.6% in December, but investors have already lowered expectations for US interest rates in recent weeks, so the pound and dollar may be more vulnerable to any bullish inflation surprise than anything else. However, before then, attention will be on Fed Chair Jerome Powell today when he participates in a panel discussion at the Riksbank International Symposium on Central Bank Independence, as well as an appearance by other Fed policymakers.
GBP/USD forecast today:
Amid the decline of the dollar against the rest of the other major currencies, there was a good opportunity for the bulls of the GBP/USD pair to rebound upwards, with gains, towards the 1.2210 resistance, the highest level of the currency pair in more than two weeks.
According to the performance on the daily chart, there will be no actual reversal of the general trend to the upside without a move in the Sterling / Dollar toward the resistance level of 1.2450. On the other hand, as I mentioned before, the stability of the GBP/USD price will remain below the psychological support of 1.2000, supporting the continuation of the bearish outlook. I still prefer selling the currency pair from every upward level.
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