GBP/USD rose again to retest 15-month highs in recent trading, but the risk is that economic data conspires with nearby technical resistance on the charts to stall or sap momentum from the recovery in the coming days. The gains of the recent bullish rebound for the GBP/USD currency pair reached the 1.2850 resistance level, from which it bounced again amid quick profit-taking sales. It moved towards the 1.2750 support level, before returning to stability around the 1.2842 level at the time of writing. This confirms the extent of The strength and importance of resistance is the highest it has been in 15 months.
Overall, the pound entered the new week trading again above 1.28 against the dollar after rising on Friday when the Bureau of Labor Statistics said that employment in the world's largest economy probably grew at the slowest pace since December 2021 in June. GBP/USD's gains were also supported by more speculation about how high the Bank of England (BoE) interest rate is likely to rise, which helped keep British government bond yields higher than their US counterparts.
But with UK economic growth already stalled and the expected level of future interest rates at their highest since the early 2000s, the rally may already be in its final throes, while UK employment data on Tuesday and the US inflation figure on Wednesday could easily trigger a setback for the pound.
Commenting on this was Andrew Goodwin, chief UK economist at Oxford Economics. “Market pricing points to a bank rate peaking at 6.5%, up 25 basis points from last week, while yields on 2- to 10-year maturities are now back above levels seen in the aftermath of last September’s mini budget.”
The analyst adds, “The Monetary Policy Committee will be under pressure to keep going until it sees clear evidence that wage growth is starting to cool off. And if the Monetary Policy Committee does not resist these pressures with sufficient strength, the risks that it continues will increase.”
The wage growth component of Tuesday's UK employment report will be of great importance to the pound after it rose to a new record high of 7.2% last time helped by a near 10% increase in the minimum wage for April, which served as the initial indicator catalyst for the recent and sustained rise in bank interest rate expectations. Surveys of economists suggest median earnings could rise by 7.1% today, but with market prices for Bank rate expectations already rising, Sterling may be more sensitive to a weaker-than-expected figure than to any bullish surprise.
Today's data follows the Bank of England's latest financial stability report, Wednesday's press conference, and the Office for National Statistics' estimate of economic growth for May on Thursday when economists look to see GDP decline by -0.3%. Thursday's GDP number would more than reverse the 0.2% increase seen in April as the economy sets its course for contraction in the second quarter if the consensus is correct although this would be enough to dampen market expectations for interest rates.
Commenting on the performance of the currency pair. “Short-term GBP-USD positioning and yields support the rebound,” says Sean Osborne, chief forex strategist at Scotiabank. And “The momentum of the trend is still strongly bullish across the short, medium and long term oscillators, which indicates that a push to (and through) the middle of the resistance 1.28 is still on the way. I am looking for strong support on dips as low as 1.27 for the day.
The pound will also be sensitive to US June inflation figures on Wednesday and whether they lead markets to more confidently anticipated US interest rate hikes later this year, which the Bank recently suggested could rise to 5.75% by the end of the year. Commenting on the forecast for the currency pair. “GBP/USD could head lower in the coming weeks towards support at 1.2572 (50-day moving average),” says Joseph Capurso, analyst at Commonwealth Bank of Australia. We expect UK labor market data to be weak.”
Forecast for the pound sterling against the US dollar today:
- The upward shift in the GBP/USD currency pair is still ongoing.
- Expectations will increase for the future test of the psychological resistance 1.3000 in the event that the currency pair moves towards the resistance levels 1.2875 and 1.2930, respectively.
- At the same time, it is sufficient to push the technical indicators towards strong overbought levels.
On the other hand, the bears will regain control of the trend if the currency pair stabilizes below the support level 1.2660.
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