- The GBP/USD exchange rate has retreated rapidly from its eleven-month highs before last weekend but could fall further this week if the pending deluge of UK economic data calls into question some common assumptions about the interest rate outlook.
- For three consecutive trading sessions, the price of the GBP/USD currency pair moved amid profit-taking sales, with losses, to the support level of 1.2353, after its recent gains, which affected the resistance level of 1.2546, and settled around the level of 1.2380 at the time of writing the analysis.
Overall, the pound was trading at some of its best levels against the US dollar since May of last year on Friday when falling US retail sales and hawkish comments from Federal Reserve Chairman Christopher Waller helped the dollar recover from its lowest levels in nearly a year against several currencies on Friday.
Governor Waller warned that he would personally look to raise US interest rates further in May and beyond unless he sees THAT "sufficient signs of moderating demand" in US economic data over the coming weeks and pointed to a number of indicators that could potentially influence his policy decision.
Surveys containing "managers' views on economic conditions" in April were among the indicators cited by Governor Waller. This means that the S&P Global Purchasing Managers' Index surveys released on Friday are likely to attract more attention from the US market than usual.
And with markets betting that the Federal Reserve is now likely to start cutting US interest rates before the end of the year, it is likely that the US dollar will benefit at the expense of the British pound this week if Friday's survey responses or any other US data do anything to bring about more. Of the increases in the federal funds rate is likely to be. But the biggest risks to the pound-dollar rate this week are home-grown, with British employment and wages figures on Tuesday for February, and inflation data on Wednesday for March either making or ending the case for a widely expected increase in the Bank of England's rate next month.
The potential downside for the Sterling is that expectations are wide that, if anything, this week's data from BoE MPC members is likely to confirm against the risk of inflation remaining at very high levels in the UK. The consensus indicates that wage growth in Britain will decline for the fourth month in a row when employment figures for February are released on Tuesday.
These types of results are likely to prolong the odds of a BoE rate hike in May and could complicate any attempt by the pound to resume its previous rally, which could ensure that important technical resistance just above 1.25 remains in place in the charts this week.
GBP/USD Technical Outlook:
According to the performance on the daily chart below, and despite the recent selling, the GBP/USD trend still has an opportunity to rise, in case it returns to stability above the 1.2400 resistance, and there will be no first reversal of the trend without the currency pair moving towards the support levels 1.2285 and 1.2190, respectively.
The reaction from the British economic data this week, along with the statements of US Federal Reserve policy officials and the performance of global markets, will have a strong and direct impact on the course of the currency pair.
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