- The GBP/USD exchange rate has rebounded sharply from its 2023 lows and may rise further in the coming days.
- Volatility is also likely later this week with focus on US inflation data and the UK budget.
- The gains of the upward rebound for the GBP/USD currency pair reached the 1.2200 resistance level.
- This is the highest for the currency pair in a month, and settled around 1.2180 at the time of writing.
Overall, the US dollar was broadly sold off to open the new week while the British pound was bought heavily as forex markets pulled back from last week's sell-off following a joint statement on Sunday from the US Treasury, Federal Reserve (Fed) and Federal Deposit Insurance Corporation. (FDIC).
The statement read in part: “We are taking decisive action to protect the American economy by strengthening public confidence in our banking system. This step will ensure that the US banking system continues to perform its vital roles.” And “The US banking system remains resilient and on a solid footing, due in large part to reforms made after the financial crisis that ensured better safeguards for the banking industry. These reforms, along with today’s actions, demonstrate our commitment to taking the necessary steps to ensure that depositors’ savings remain safe.”
Sunday's joint action states that shareholders and bondholders of distressed banks such as Silicon Valley Bank should be fully bailed out in order to make depositors complete with a pledge of full faith and credit from the US government and the Federal Reserve as collateral for any difference.
Sunday's action draws a line under global markets' recent concerns about the stability of the US financial system by bailing out all bank depositors while ensuring that owners and other creditors are bailed out to the fullest extent possible in the event of any institutional failures. These concerns were a major drag on the GBP/USD exchange rate last week, and their resolution could be a huge boon early in the new week, but a lot about the short-term outlook for the pound will also depend on data due from both sides.
Tuesday's UK employment and wages data for January will likely influence the Bank of England's (BoE) interest rate decision for this month, but the subsequent publication of US inflation figures for February is likely to influence the pound and dollar. .
The data is also likely to be an influential arbiter of whether the Fed raises US interest rates by only a quarter or a percentage point in March or if it opts for a larger half-percentage-point move.
Joseph Capurso, analyst at Commonwealth Bank of Australia, says: “GBP/USD could fall this week if US CPI for February is stronger than expected. The decline in employment and profits in the UK on Tuesday could also affect the GBP/USD pair.” And “there is bearish support at 1.1824 (50% fibo). AUD/GBP could head higher towards 0.5629 (100-day moving average) if UK employment and wages data eases.”
While the GBP/USD rate is likely to be sensitive to inflation and employment figures released on Tuesday, this is just a prelude to the most important for the pound, which is Wednesday's annual financial update from the UK Treasury. A more resilient economy than expected has put the Chancellor in a better position than expected before, but it is also constrained by persistent inflation risks and OBR pessimism about the economy's long-term outlook.
However, the risk of the pound is perhaps less hawkish on monetary policy keeping the BoE's interest rate risk-balance tilted to the upside.
GBP/USD Forecast:
According to the performance on the daily chart below, the recent gains of the GBP/USD currency pair caused a breach of the general bearish trend. Breaking the resistance level 1.2275 will change the general trend to bullish. At the same time, it will move the technical indicators towards overbought levels. I still prefer selling the Sterling/dollar from every bullish level. Breaking the psychological support will restore the bears' strong control over the trend. The GBP/USD pair will be affected today by developments in the collapse of US banks and the reaction to job and wage numbers in Britain and US inflation figures.
Ready to trade our daily Forex analysis? We’ve made a list of the best brokers to trade Forex worth using.
