- The technical view for the British Pound against the US Dollar “GBP/USD” exchange rate has collapsed, with the potential for further weakness in trading this week dominated by the release of the US Personal Consumption Expenditure (PCE) inflation report.
- Recently, the GBP/USD pair is stabilizing around the support level of 1.2636 at the time of writing, having been pushed lower by recent selling pressure towards the support level of 1.2575 last week.
- Moreover, breaching the psychological support level of 1.2600, as we have repeatedly noted that movement towards it would support the bearish stance.
According to forex trading platforms, the British Pound sharply declined after the Bank of England signaled in its March policy update that it would soon be appropriate to lower interest rates, increasing the likelihood of the first cut in June. Meanwhile, expectations for the first rate cut by the Federal Reserve drifted in the opposite direction, with the possibility of a move in July now. Overall, this divergence weighs heavily on the GBP/USD pair. This is considering that trading positions in GBP/USD were particularly crowded ahead of the Bank of England's decision last Thursday.
Commenting on the currency pair's performance, forex currency analysts at Scotiabank see the near-term technical setup for the British Pound as "bearish - price action maintains a subdued appearance.". They said, "It has broken daily trend support “resistance now near 1.2690” and is testing the 200-day moving average (1.2593), Retesting the low/mid 1.25 area seems likely,". Also, "GBP/USD” is crossing through moving averages and trying to break below the key moving averages at 1.2600 and the 200dma. Technically, we were just trying to break above resistance at 1.2800 last week (which it did) and are now testing the downside."
Meanwhile, Thanime Islam, Head of Forex Currency Analysis at Equals Money, suggests that the real possibility of a change in direction has increased. He added, "The Federal Reserve may cut US interest rates later than their European counterparts, who saw the largest daily gains for the US dollar since February 2."
Regarding the technical setup for the British Pound, the potential for a long-term directional change in the GBP/USD pair may be ongoing, with a bullish pattern emerging on both the British Pound index and the US Dollar index. Obviously, this occurs when price action on a given day mirrors the price action in the previous days. Moreover, these patterns occur on upward and downward trend lines, suggesting we may be at the beginning of a weak trend for the British Pound and a strengthening trend for the US Dollar.
GBPUSD Expectations and Analysis Today:
Looking at the economic calendar for this week, Catherine Mann's speech from the Bank of England on Monday will be of interest. She was one of the monetary policy committee members who voted to keep interest rates at 5.25%, after voting for a rate hike in February. The markets viewed her change of vote and Jonathan Haskell's vote as a clear signal that the Bank is nearing a rate cut. Her justifications may shed some light on the speed and extent of the upcoming cycle, which could impact the forex market.
Regarding the US economic calendar, we have an important inflation report scheduled for release on Friday. As known, the Federal Reserve closely monitors the Personal Consumption Expenditure (PCE) index to gauge the inflationary pressures facing US consumers. The data is set to be released on Friday (note that most markets will be closed for the Easter holiday), with the core rate expected to be 0.4% on a monthly basis in February. Any beat on this figure would increase expectations that the Federal Reserve may not need to cut interest rates anytime soon, which could support the recent rise in the US dollar.
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