- The pound sterling has settled around $1.25, while the US dollar remains near its November peak, supported by expectations of a more cautious stance from the Bank of England compared to the US Federal Reserve on monetary policy.
- GBP/USD's rebound gains did not exceed the 1.2565 level and is stabilizing around 1.2520 at the start of trading on Thursday.
According to the results of the economic calendar data, Recent market sentiment suggests an 80% chance that the Bank of England will make its first move in August, followed by a 60% chance of a cut later this year. Conversely, the likelihood of the US Federal Reserve implementing its first interest rate cut in September has diminished, reflecting concerns about slow progress in reining in inflation to the 2% target. For his part, Bank of England Governor Andrew Bailey recently indicated that British inflation appears ready to meet the 2% target, while his colleagues Megan Green and Hugh Bell spoke in a more hawkish tone, indicating that it is too early to consider interest rate cuts.
On the economic side, The UK S&P Global UK Manufacturing PMI was revised slightly higher to 49.1 in April 2024, up from the initial estimate of 48.7 but down from the 20-month high recorded in March of 50.3. Equally, production and new orders fell back into contraction territory after short-lived upswings in March, amid uncertain market conditions, customers depleting inventories, and supply chain disruptions.
In addition, the decline in new export business extended to 27 consecutive months, with reports of weaker imports from Germany, Ireland, Asia, and the United States. British employment levels also fell for the nineteenth month in a row. On the price front, input price inflation accelerated to its highest levels since February 2023, and production fee inflation reached its highest level in 11 months.
Finally, the outlook for the UK manufacturing sector remained positive in April due to hopes for a recovery in demand, new product launches, efficiency gains, and improving market conditions.
On another level, it has a strong influence on the performance of the Forex currency market. The US Federal Reserve kept the target range for the federal funds rate unchanged at 5.25%-5.50% during its May meeting for the sixth consecutive time, as persistent inflationary pressures and a tight labor market indicate that progress towards returning inflation to normal levels has stalled. Policymakers acknowledged that although inflation moderated over the past year, it remains high, and there has been a noticeable lack of further progress towards achieving the US central bank's target in recent months.
However, Chairman Jerome Powell stated that he does not expect a potential rise and believes current policy is sufficiently restrictive to achieve the 2% inflation target. Also, the Fed announced its intention to reduce the speed of its quantitative tightening starting on June 1. This is an adjustment that will include reducing the maximum amount of Treasury bonds that are removed from the balance sheet by more than 50%, down to $25 billion per month from the previous balance sheet.
Technical forecasts for the GBP/USD pair today:
Recently, the price of the GBP/USD pair has risen to trade at approximately the 100-hour moving average line. A late pullback on Wednesday prevented the currency pair from entering overbought levels of the 14-hour RSI. In the near term, and according to the performance on the hourly chart, it appears that the GBP/USD currency pair has recently completed an upward breakthrough from the formation of a descending channel. Technically, the 14-hour RSI appears to be supporting the upside as it approaches overbought levels. Therefore, the bulls will target extended bounces at around 1.2544 or higher at 1.2587 resistance. On the other hand, the bears will look to pounce on pullbacks at around 1.2467 or lower at the 1.2424 support.
In the long term, and according to the performance on the daily chart, it appears that the GBP/USD currency pair has also completed an upward breach from the formation of the descending channel. Also, the 14-day RSI appears to support a long-term bullish bias after a bounce to avoid falling into oversold levels. Therefore, bulls will target long-term profits at around 1.2705 or higher at 1.2888 resistance. On the other hand, the bears will look to pounce on profits at around 1.2303 or lower at the 1.2100 support.
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