The bulls struggled a lot during the week’s trading to push the price of the GBP/USD currency pair to breach the psychological resistance level of 1.2500. After several attempts, the bulls succeeded in penetrating gains that reached the resistance level of 1.2583. This is the highest level for the currency pair in 10 months, and closed trading last week, stable around the resistance level of 1.2567 and its gains. The current one is on an important and strongly influential date this week, as the US Federal Reserve will announce an update to its monetary policy, ending with the announcement of US job numbers.
Bank of England (BoE) chief economist Howe Bell sparked controversy this week when he said everyone should accept being poorer because of inflation, but that wouldn't be the case if he also explained how inflation risks taking food straight off people's plates in some countries. the poorest countries in the world. While participating in the Columbia University podcast, the Bank of England's chief economist spoke of a parcel-passing game in which companies and individuals raise prices for products, services, and salaries in an attempt to maintain "real" income due to the high levels of inflation we have seen in recent years.
The remarks came with the suggestion that people accept being worse off rather than seek to bridge the gap between annual wage growth that has been said to have been in the region of 5% or 6% over recent months, and the annual inflation rate that has been holding up. in two digits at the same time. Consumer price inflation of 10.1% in March was more than five times the Bank of England's target of 2%, hence how and why the bank's chief economist was quickly rebuked and criticized by market commentators and media analysts alike.
However, many would likely have responded differently had they known at the same time exactly how inflation and wage pressures in the UK might affect others elsewhere, particularly in some of the world's poorest countries.
The British Pound has outperformed several other major currencies in the early months of the year and has been rebounding through most of this week, but there are a couple of reasons why Bank of England (BoE) interest rate policy now might present a disproportionate risk to the downside for the months ahead. Accordingly, the British pound retreated from near its earlier highs against most of the major currencies last Thursday, but it was still close to being an outperformer throughout the week while gaining most of its peers in the G20 for the year 2023 after extending in the quarter. The first from a recovery that began at record lows late last year.
Many attribute the gains to metrics indicating that the British economy has often outperformed the Bank of England (BoE) imperfect forecasts even as it slowed to a crawling pace, although inflation remained in double digits last month, when sterling was in May. British inflation fell to just 10.1% last month, contrary to economists' expectations of easing back into high single digits, prompting interest rate markets to price in the high probability of a bank rate hike from 4.25% to nearly 5% as a result which causes risks for the pound sterling in the future.
Technical analysis of the GBP/USD:
- GBP/USD formed decreasing tops and rising bottoms to consolidate inside a symmetrical triangle pattern on the hourly chart.
- The price is testing the resistance and may be due for a pull back to the support level soon.
- If sellers continue to defend the major psychological level at 1.2500, the pair may bottom at the minor psychological level at 1.2450.
- Technical indicators are mixed on whether or not resistance will hold.
The 100 SMA remains above the 200 SMA to indicate that the general trend so far is still bullish or that the resistance is more likely to break rather than hold. If that happens, GBP/USD could be on track to rise as high as the chart formation or around 100 pips. However, Stochastic is already turning lower from the overbought territory to indicate that the bears are in control while the bulls are taking a breather. The oscillator has plenty of room to decline before reaching the oversold zone to reflect exhaustion among the sellers.
The RSI is also turning lower without reaching the overbought territory, which indicates that sellers are keen to take over. The continued bearish momentum may trigger a break below the support level and sell-offs as high as the chart pattern.
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