- The US dollar strength helped the bears move the GBP/USD currency pair to the psychological support level of 1.2600 and closed trading around 1.2650 last week.
- This downward move will be marked by the important trading week that will affect the forex market led by the US.
- In Britain, British Chancellor Jeremy Hunt will unveil his budget next Wednesday in what could be the last announcement before the general election, which is likely to take place this year.
Speculation in recent days has focused on possible handouts to voters, and an end to the “non-domiciled” status used by wealthy foreigners. Hunt may have limited room to maneuver on tax cuts.
Overall, financial markets in general have become more confident about the economic outlook in Britain and investor confidence in the euro zone improved in February, but the pound and euro currencies lost their strength in global markets last week. Overall, the Bank of England (BoE) and European Central Bank (ECB) forecasts will be a key element in the forex markets. Last week, the Bank of England disputed the possibility of a near-term interest rate cut with comments that it was too early to be confident that inflation would fall to the 2% target on a sustainable basis. A key element for sterling is whether the Bank of England's speech is seen as credible.
British economic data will continue to be closely monitored.
According to the economic calendar data, the final reading of the purchasing managers index for the British services sector was revised upward to a new highest level in 8 months at a reading of 54.3 for the month of January from the initial reading of 53.8, with confidence at the highest level in 9 months. Also, average prices charged by service sector companies continued to rise at a strong rate in January, but the rate of increase was at its lowest level in 4 months.
Commenting on the data results, Tim Moore, director of economics at S&P Global Market Intelligence, which compiles the survey, commented, “The combination of lower inflation and improving order books has provided a strong boost to the outlook for business activity across the services economy. Moreover, another rise in business confidence in January provides a signal that high levels of geopolitical uncertainty have not yet imposed too many restrictions on the services sector. According to growth forecasts for the year 2024.”
According to MUFG Bank, “We continue to believe that the Bank of England, like other global central banks, may have tightened too much, and initial reluctance to signal significant easing is likely to ease. Assuming the Fed and ECB cut their rates in April, May, and June, we see the Bank of England cutting either in the period from April to May and then June.” At the same time, BNP Paribas remains cautious about the outlook for the British pound; The Bank of England results reinforce our caution in building long-term buying positions for the pound. The possibility of an early start of interest rate cuts by the Bank of England poses a downside risk to sterling.”
GBPUSD Expectations and Analysis Today:
We expect the GBP/USD currency pair to continue its current downward trend until the markets and investors react to important and impactful events this week. The events will begin by the announcement of the UK budget, followed by the crucial testimony of the US Federal Reserve Chairman Jerome Powell, and then the release of US job numbers.
Based on the performance on the daily chart, moving below the support level of 1.2600 will be significant for further bearish control over the direction, and the technical indicators won't trend towards strong oversold levels if the GBP/USD pair continues to decline to support levels of 1.2550 and 1.2460, respectively.
Conversely, during the same time period, breaking above the resistance level of 1.2775 will be significant for a bullish outlook on the currency pair.
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