With the opening of the new week’s trading, the GBP/USD exchange rate rose to its highest level in a year, with gains towards the 1.2668 resistance level, before settling around the 1.2630 level at the time of writing the analysis. The market expectations of the US Federal Reserve and the new inflation expectations of the Bank of England changed ( BoE) are just two of the factors that could lead yet to delinquency in the coming days.
The GBP/USD pair's recent gains put it on track for what will be a ninth week of gains if it is able to navigate around Wednesday's US inflation figures and their potential implications for the Federal Reserve's outlook. Commenting on this, Tom Kenny, chief economist at ANZ, says: “There are several surveys this week, which should provide insight into the extent to which banks are tightening credit standards, while CPI data for April should show inflation not. It's still too high."
In general, the markets have bet more confidently during the past two weeks that the Federal Reserve is likely to cut the US interest rate three times by the end of the year, but these bets will be difficult to bear, with bullish repercussions on the dollar, unless inflation data appears and provides clear signs of the trend of inflation continues.
The annual rate of inflation has fallen in each of the past nine months, but the consensus among economists is that it is likely unchanged at 5% for April, while the prevailing view is that the more important core inflation rate is merely reversing the previous mark upwards from 5.5. % to 5.6% last month. Given the market assumption of interest rate cuts by the end of the year, it is not clear if lower-than-expected inflation will lift the pound further, but it is very likely that a stronger-than-expected result could temporarily lift the dollar and lead to a setback for the pound.
Commenting on the performance of the currency pair, Kenneth Brooks, an expert at Societe Generale Bank, says, “It is now close to the potential resistance area at 1.2670 / 1.2750, which represents a trend line drawn since 2021 and a recovery of 61.8% of the previous downtrend. And in the event that the rebound fades near this area, a short-term decline is not excluded,” the analyst added, saying that “the December peak at 1.2440 should provide support.”
According to analysts, financial markets are now widening for a 25 basis point increase after this week's meeting. A decrease in BoE tightening may push the market to raise interest rates and affect GBP/USD temporarily. February expectations indicate that a sharp decline in the second quarter of the year will lead to a decline in inflation to about 4% by the end of the year, but the declines witnessed in the United Kingdom during the first quarter were less than expected by economists, and there is a state of uncertainty about the Bank of England .
Economists and markets expect the bank rate to rise from 4.25% to 4.5% on Thursday, but they are also banking on it rising 5% later in the year and the GBP/USD rate will likely be sensitive to what, if anything, the BoE says. or imply these assumptions. Any proposal from the BoE to end it, or is about to finish raising interest rates, is likely to weigh on GBP/USD ahead of Friday's release of UK GDP data for March.
Sterling forecast against the dollar today:
- According to the performance on the daily chart below, the general trend of the GBP/USD pair is still bullish.
- Stability is above the resistance 1.2600, supporting bulls' control over the trend.
- Moving towards the resistance 1.2680 will push the technical indicators towards strong overbought levels.
- Expect profit-taking sales to activate at any time.
- They may increase if the Bank of England abandons the tone of further tightening of its policy this week, in addition to the US inflation figures that were stronger than expectations and support the Bank's tightening policy. Federal Reserve.
On the other hand, and over the same period of time, breaking the support level at 1.2515 will be important to start breaking the current trend.
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