- The GBP/USD exchange rate rose near its highest levels in six months.
- The pair could rise more in the coming days with a breach above the technical resistance at 1.2504 and approaching 1.26 possible if British and US economic data remains favorable for a continuation of the bounce for risk currencies.
- The gains of the upward rebound for the GBP/USD pair reached the 1.2447 resistance level at the beginning of this week's trading, before settling down around 1.2360 at the time of writing.
Overall, the US dollar was sold off broadly last week while the British pound gained across all its peers after a series of economic figures made further Bank of England (BoE) rate hikes more likely for the coming months. Sterling overcame technical resistance on the charts to climb four days out of five in a rally that pressured one of the market's biggest short positions in the G10 currencies, although it could rise further if incoming economic data remains benign enough. to maintain the strength of the dollar.
Risks of a corrective setback could enter the picture if the S&P Global Purchasing Managers' Index surveys on Tuesday indicated that the rebound in activity in December was a false bottom for the UK's manufacturing and service sectors, or if the consensus turns out to be overly optimistic about US economic data this week.
Andrew Goodwin, chief UK economist at Oxford Economics, wrote in a paper on Friday: “The December S&P Global/CIPS survey showed a composite PMI rose to 49.0, but guidance for both the manufacturing and service balances remained below the mark. 50 "No Change". The analyst added, “Although lower energy futures prices may offer some support to sentiment, the bigger picture is that household and corporate balance sheets continue to shrink. As a result, we believe that the Composite PMI this week will remain in contraction territory.”
Tuesday's PMI surveys are the highlight of the British calendar, but their relevance is waning with the release of US Q4 GDP data on Thursday and the latest core personal consumption expenditures (PCE) price index on Friday. A consensus among economists indicates that the US economy grew at an annual pace of 2.6% in the most recent quarter, down from 3.2% in the third quarter, but still a respectable number when following pre-pandemic standards.
Any GDP figure for the fourth quarter that is in line with expectations will have potentially positive effects on other economies around the world and therefore will likely have a greater impact on dollar exchange rates this week, although a lot also depends on the release of a price index. Basic personal consumption expenditures on Friday. This particular measure of inflation is closely watched by the Federal Reserve (Fed) and would pose an upside risk to US bond yields and the dollar if Friday's release throws a divergence with the latest CPI numbers, which indicated that inflation in the US is now over. hill and withdraw.
But the dollar is also likely to be weighed down by the side effects of the US government's debt limit reaching last week, forcing the US Treasury to draw down from its bank account at the Federal Reserve.
Technical outlook for the GBP/USD pair:
GBP/USD may be ending its long-term bearish trend, as the pair has formed an inverted head and shoulders on the daily chart. The price is testing neckline resistance around 1.2500, and a break higher could confirm that a reversal is in progress. Technical indicators suggest otherwise. Where the 100 SMA remains below the 200 SMA to indicate that the general trend is still bearish or that the ceiling is more likely to hold than to be broken.
The gap between the moving averages is narrowing to reflect a slower bearish pressure and a possible bullish cross that could attract more buyers. Meanwhile, Stochastic is already in the overbought area to show that the buyers are exhausted and may let the sellers take over. The RSI has a bit more room to run but also closes in the overbought territory.
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