The GBP/USD exchange rate reversed much of its May decline in early June trading, but technical hurdles are likely to impede its recovery once around the 1.26 resistance level or above. This is while a minefield of economic data and related risk events may lead to easily setback the pound sterling in the coming days.
Tova Bukingolts
Today, the price of the GBP/USD pair is settling around the 1.2566 resistance level, at the time of writing, with positive momentum from the British job numbers, which were announced this morning.
Overall, the US dollar was sold off broadly in a buoyant market for risk assets and a supportive environment for the pound last week, with the pound rising against all of the G20 except the Australian dollar, the Norwegian krone and the South African rand while rising again above 1.25 against the greenback. But Tuesday's release of UK employment numbers and subsequent readings of last month's US inflation rates could be a game-changer for either currency involved, and with sterling rising the farthest against the dollar in recent months, it could also be one of the better currencies. most vulnerable to any rebound by the latter.
“Let's see if today's data gives BoE Governor Andrew Bailey the opportunity to backtrack on those strong expectations when he testifies before the House of Lords Committee tomorrow afternoon,” said Chris Turner, Forex Analyst at ING.
The UK wage number is likely to be the most important to the market after more than a year in which wages have consistently risen around 5% or 6%, prompting the Bank of England (BoE) to fear that inflation will continue to rise for much longer. As a result, prompting markets to look for a bank rate hike of up to 5.5% this year in response. A 10% increase in the national minimum wage is expected to lift wage growth back above 6% on Tuesday and sterling may benefit briefly if the increase is stronger but is likely to be more sensitive to any lower-than-expected reading, given how high expectations the Bank interest rates are already in recent weeks.
However, the biggest risk to recovery in the GBP/USD rate this week, stems from US inflation numbers released today, Tuesday, and the impact they may have on the Federal Reserve's interest rate outlook after the nine-month downtrend appeared to be in the rate. Core inflation stalled when the April numbers were released last month.
Sterling forecast against the dollar today:
- There is no change in my technical view of the performance of the GBP/USD pair.
- As I mentioned a lot in the past, the currency pair's breach of the resistance levels 1.2550 and 1.2630 will be important for the bulls to control the direction for more upward movement.
- In the same performance on the daily chart below, breaking the support levels 1.2455 and 1.2380 will give the bears the opportunity to move the currency pair down again.
- Important data and events this week, whether from Britain or the United States of America, will have an impact and direct the price of the currency pair in the coming days, so caution should be exercised.
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