- Amid a temporary halt in US dollar gains ahead of important data and events, the price of the GBP/USD pair managed to rebound higher.
- It extended gains above the resistance level of 1.2710 before settling around the 1.2675 level at the start of Wednesday's session.
This session includes the announcement of crucial US inflation figures followed by the release of the minutes from the latest Federal Reserve meeting. Amid cautious anticipation, forex analysts at Morgan Stanley expect this week's US inflation report to fall below expectations, leading to weakness in the US dollar. Andrew Waters, an expert at Morgan Stanley, states, "We see bearish risks in the near term for the US dollar from the March Consumer Price Index reading."
According to economic calendar data, the release of US inflation is the most significant event for global markets this week, as it could reinforce expectations about whether the Federal Reserve will push for a rate cut in June or not. Therefore, Morgan Stanley researchers suggest that a stable US Consumer Price Index indicates a downward surprise of 3.36% on an annual basis, while the market is poised to read 3.5% based on a Bloomberg survey of economists.
Meanwhile, the economists at Morgan Stanley expect the outcome to be below expectations, sticking to a result of 3.4%. Given the historical relationship between Consumer Price Index surprises and the US dollar, Morgan Stanley anticipates a Consumer Price Index surprise of 0.86 standard deviations associated with a 0.5% decline in the US Dollar Index (DXY) by 9:00 am Eastern Time (with data released at 08:30).
Such a broader decline in the US dollar could allow the GBP/USD exchange rate to expand its post-US jobs report recovery towards the 1.27 resistance level, provided market volatility remains low before the result. Overall, forex market volatility is historically low, which may limit the sterling's upward trend in the event of data shortfall. Also, this may mean that any strength ultimately fades in the hours and days following the initial move upwards.
In general, US data tends to rise suddenly in 2024, as the economy proves to be more resilient than investors expected at the beginning of the year. Clearly, this may indicate that it will take more than just one mild inflation reading to reverse the trend against the dollar.
As 2024 dawned, markets were priced in for up to 150 basis points of US interest rate cuts in 2024, but by the time of writing, this has been reduced to just 68 basis points, boosting US bond yields relative to other markets. Consequently, this supported the US dollar, the best-performing currency of the year. Obviously, the US dollar will remain preferred over other major currencies if inflation numbers this week exceed expectations. The decline in inflation has stalled, and fundamental progress remains stubbornly slow. Fixed services and rising gasoline and energy prices pose upward risks in the future. However, the lagged effect of falling rents, which account for more than half of total inflation, should weigh on the CPI in the coming months,” say market analysts at Vantage.
GBPUSD Expectations and Analysis Today:
There is no change in our technical view of the performance of the price of the British pound currency pair against the US dollar GBP/USD, just the performance on the daily chart attached. The price of the currency pair is in the stage of breaking the downward channel that was formed recently. As mentioned before, the movement will remain above the resistance 1.2775 to start the bulls’ control of the trend. Technically, the next most important peaks may be 1.2830 and 1.3000, respectively. The last level confirms that the general trend has turned bullish. Moreover, this may happen if US inflation numbers come in below expectations and confidence in the Bank of England’s tightening returns again. On the other hand, if the US inflation numbers become stronger than all expectations and momentum increases towards the future tightening of the US Central Bank’s policy, the sterling/dollar pair may return below the psychological support of 1.2600 again. Ultimately, there are hopes of a rebound to the current level.
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