- In my latest technical analysis, I recommended selling the GBP/USD pair as it crossed the resistance level of 1.2300, which is what we have already bought as a safe solution.
- The gains of the GBP/USD currency pair extended to the resistance level of 1.2337, and it quickly underwent strong selling operations that pushed it towards the support level of 1.2122, before closing the week's trading stable around the 1.2140 level.
- The US dollar is still the strongest currency due to expectations of raising interest rates and demand for buying it as a safe haven.
Bank of England Policies Linked to Natural Gas Prices
On the other hand, the rise in natural gas prices and the rise in core inflation in the United States are two signals that could push the Bank of England to raise interest rates again before the end of the year. The other rise in gas prices came on the same day that the governor of the Bank of England said that the upcoming decisions would be “strict”.
Commenting on this, Simon French, economist at Panmure Gordon, said: “It has been a difficult time at the Bank of England due to the havoc caused by gas prices for inflation expectations last year. Gas futures contracts took a vertical direction - which is a direct feed for consumer price index expectations for November.”
The rise in gas prices could mean that the energy component in the inflation basket will continue to put upward pressure on core inflation rates, as was the case in August, ultimately boosting broader inflation expectations. The analyst added that it appeared that gas would contribute to the decline in the CPI for 2024, offsetting increases in crude oil. That equivalent effect was no longer the case this morning, on a day when UK wholesale gas prices rose to £140 from just £89 last week. Factors causing the rise in gas prices include a leak in the Baltic Pipeline, a drop in Israeli supplies and strike threats by workers at Australian facilities. But economists say the main reason is forecast for unusually cold weather in the second half of October, which will lead to increased demand.
“Significantly cooler weather in the second half of October is expected to be the main driver behind higher prices – and going forward, the main risk as well,” says Aldo Spanger, senior commodities analyst at BNP Paribas in London.
Meanwhile, the US dollar rose last Thursday after the United States announced that inflation in basic services rose significantly in September. The US experience is relevant as Britain appears to be lagging behind developments there. Perhaps understandably, the Bank of England's top rate-setters are cautious about signaling that the rate-hiking cycle is complete.
On Friday, Bank of England Governor Andrew Bailey told at an International Monetary Fund conference in Marrakesh that interest rate decisions in the United Kingdom would be “tight.” He added that despite the strong progress made in fightinginflation, there was still work to be done. He said: “Our last meeting was very close, and as my colleague Huw Pill said this week, they will continue to converge.” Bailey's comments follow those made by the bank's chief economist, Hugh Bell, who said earlier in the same week that the upcoming measures were "well balanced".
Overall, the developments helped support implicit market expectations for further interest rate hikes and delayed expectations for the start of interest rate cuts. For the British pound, these dynamics are supportive and stimulating for gains.
Expectations for the British Pound against the US Dollar today:
According to the performance on the daily chart below, the bears’ control over the performance of the GBP/USD pair remains strong, and as I mentioned before, the move towards the support level of 1.2150 will support expectations for a move towards the psychological support level of 1.2000 again.
On the other hand, and over the same time period, there will be no first reversal of the GBP/USD trend without moving towards the resistance level of 1.2450. The currency pair is not awaiting important and influential data today other than statements by monetary policy officials of both the Bank of England and the US Federal Reserve.
Ready to trade our daily Forex analysis? Here are the best regulated trading platforms UK to choose from.