The GBP/USD exchange rate held near six-week highs in recent sessions but could continue to rise this week if global markets stabilize ahead of eagerly awaited interest rate decisions from the US Federal Reserve and Bank of England. The rebound gains for the GBP/USD pair reached the 1.2285 resistance level, its highest in five weeks, and settled around 1.2250 at the time of writing.
Overall, the heavy losses in US and European financial stocks did nothing to help the underperforming dollar last week. The risk now is that any renewed sense of calm on Monday will also see the greenback lagged by the coordinated central bank actions announced over the weekend.
“The US dollar is caught between opposing forces — a low-rated Fed tightening cycle and concerns about system stability that would normally give it a safe-haven boost,” says Richard Franulovich, forex analyst at Westpac. "Our best guess is that liquidity barriers, including the Fed's swap lines for US dollars and 'resolving' Swiss banking concerns, will reduce the upside potential for the safe-haven US dollar," the analyst added.
For its part, global central banks, including the Bank of Canada, Bank of England, Bank of Japan, European Central Bank, Federal Reserve Bank and Swiss National Bank, said they will coordinate to enhance the availability of US dollars in the global financial system from Sunday onwards. It followed closely on the heels of Sunday's announcement detailing the state-brokered takeover of Credit Suisse by UBS after recent bank failures in the US led to market speculation about the viability of the loss-making lender and ignited European banking stocks last week.
For his part, says Holger Schmieding, chief economist at Berenberg, “The banking crisis is a major financial disruption, but it is not (yet) a major economic event. The turmoil lowers potential peaks in central bank rates on both sides of the Atlantic further hurting the outlook for economic growth.” “For the US, we have lowered our call for a peak in US interest rates by 50 basis points while pushing the GDP forecast slightly lower. And for the Eurozone and the UK, we have adjusted the balance of risk for our calls.”
Financial markets have had concerns about the stability of small and medium-sized banks as well as some large corporations because of the cost of paying sharply increasing interest rates on depositor balances at a time when profits are still being made from lower interest rate loans being offered over the past decade or so.
Sterling forecast against the dollar today:
- With the recent gains, the price of the GBP/USD currency pair moved in a bullish channel that was formed recently. In order to turn to the upside, the currency pair must move towards the resistance levels 1.2420 and 1.2560, according to the performance on the daily chart below.
- I still prefer selling GBP/USD from every upside.
On the other hand, and over the same period of time, a move below the support level 1.2165 will be important for the bears to regain control of the trend.
The currency pair may remain in a narrow range until the announcements of the US Federal Reserve and the Bank of England.
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