- The pound sterling is still holding up well against the recent gains of the US dollar, with the GBP/USD currency pair stabilizing around the resistance level of 1.2745 at the time of writing the analysis.
- However, the pound sterling could face further pressure against the US dollar in the coming days amid ongoing reassessment of the US Federal Reserve policy and concerns surrounding the strength of the British economy.
Meanwhile, the pound sterling lost half a percent of its value against the dollar last week, but we note that the currency pair has proven incredibly resilient in the past five weeks. In fact, it has not closed below 1.2650 in the past five weeks, nor has it closed above 1.2750. However, the declines that followed the British retail sales figures last Friday are tipping the risks to the downside, and this may be the week we finally see some more coordinated progress to the downside. Therefore, moving and testing the 200-day moving average at 1.2547 seems like a reasonable short-term target that could be achieved in the next week or two. However, analysts at UBS are more bearish in their outlook, targeting a move to 1.24 as they point to the pound sterling as a sell in their latest weekly trading recommendations.
In this regard, Dominic Schneider, an analyst at UBS, says, “We recommend increasing exposure to short sterling against the dollar at current levels of 1.2650 as a trade of the week.” Added, “We are looking at 1.245 as a target level and will take losses if spot trades above 1.280.”
Obviously, the pound sterling has proven to be highly sensitive to data in recent weeks, as evidenced by the rise that followed last week's stronger-than-expected inflation reading and the decline that followed Friday's retail sales decline. Tomorrow, Wednesday brings the release of the S&P Global January Purchasing Managers' Index (PMI) survey, which will give a strong hint about the performance of the economy in the first month of 2024.
In commenting on this, Valentin Marinov, a currency analyst at Credit Agricole, says, “For the pound sterling's resilience to continue in the coming days and weeks, economic data in the UK must show more clear signs of improvement.”
Likewise, the market expects a reading of 46.7 for the manufacturing sector, a reading of 53.5 for the services sector, and a reading of 52.3 for the composite reading. Also, last week's experience showed that risks are two-sided, giving a simple rule that the pound sterling price can achieve gains on upward surprises and fall on disappointment, with the size of the movement matching the size of the deviation from the consensus. Currently, the key question to ask is whether there is anything on the economic docket that can stop expectations of a March Fed rate cut fading in the coming days. Shortly, no, which is why the dollar could be favored as we approach the second half of January.
In this regard, Valentin Marinov, an analyst at Credit Agricole Bank, says: “The price of the high-yielding US dollar, which is considered a safe haven, has recently regained its strength in all areas, as the coordinated pressure of central banks against overly cautious market expectations has finally begun to bear fruit.” He added, “The rise in US and global yields has affected risk assets, leading to a tightening of global financial conditions, which has polished the currency’s appeal as a safe haven.” More importantly, he says this trade supporting the dollar is still ongoing.
GBP/USD Expectations and Analysis Today:
According to the performance on the daily time frame chart, the price of the GBP/USD currency pair is still on an upward rebound path that will be supported by a move above the resistance 1.2760. Moreover, the technical indicators will not move towards strong saturation levels of purchase without moving towards the resistance levels 1.2820 and 1.2900, respectively. Therefore, we expect performance to continue in the current range until the reaction to the results of British and American economic data this week. On the other hand, over the same time period, and as we mentioned before, the support level of 1.2600 will remain the most important for bears to have strong control over the GBP/USD direction.
Ready to trade our Forex daily analysis and predictions? Here are the best forex trading platforms UK to choose from.