For five consecutive trading sessions, the bulls continue to try to control the performance of the GBP/USD currency pair, but the gains in control did not exceed the resistance level of 1.2740, and it settled around the level of 1.2710 at the time of writing. The strength of the upward move needs more positive momentum, and the US Federal Reserve's reaffirmation of the rate hike path helped the US dollar achieve gains against the rest of the other major currencies.
Generally speaking, speculative investors are the most bullish on the pound since times leading up to the value-driven Brexit vote according to the biggest snapshot of sentiment in the forex markets. The net number of “long” contracts on the pound sterling held by speculative investors rose by another 5,000 in the last week of June to 52,000, according to the CFTC.
“Speculators' net long positions on the British pound are now at their highest level since July 2014,” said Gene Foley, Rabobank's chief forex analyst.
According to the CFTC's Commitment of Traders report, this marks a slowdown in the heavy net buying of GBP seen in the past week as investors took the Bank of England rate decision which saw a larger-than-expected 50bp hike. However, despite increasing investor interest in the pound to pre-Brexit highs, the pound actually headed lower in the aftermath of the BoE's decision and during the end of the month.
Looking ahead, if this view holds true, we can expect the trends that preceded the decision to take hold again, leading to further upside for the GBP. But the bullish sentiment on sterling comes with a risk warning: the higher the net long position, the greater the risk that the currency will fall when positions are "washed out".
Valentin Marinov, forex analyst at Credit Agricole, said that: “The pound sterling, in particular, may be vulnerable to profit-taking in long positions in the market.” Rabobank's Foley said she believes that the upside in the pound will be limited by concerns that higher interest rates at the Bank of England appear to boost economic growth risks in the UK.
Rabobank is looking forward to weak economic growth and high inflation coupled with high national debt and concerns about investment growth in the coming months. Therefore Rabobank expects the pound to end the year softer against the euro around €0.87/£. This would give an exchange rate of GBP to EUR around 1.15. As for the GBP/USD exchange rate, the direction of the dollar is expected to be the most important. Accordingly, analysts said that: “We expect the currency pair to struggle to clear the recent highs and look for the current pair to end H2 lower for the GBP/USD at 1.2200.”
However, the British pound is starting the second half of the year with a bid, and some forex analysts say July could see the British currency continue to benefit from higher UK interest rates. UK two-year bond yields are proving an attractive proposition for yield-hungry international investors as they remain close to their highest level since 2008 as markets move into the price of higher BoE rates.
Overall, the pound sterling was the best-performing major currency in the first half of 2023 advancing in value against the entire G10 currency field amid better-than-expected economic performance in the UK and higher interest rates in the Bank of England. Meanwhile, a weekly currency research report from Barclays Bank strategists bears a positive stance on the GBP outlook as higher interest rates in the UK are expected to support global investor demand for British assets.
GBP/USD Technical Outlook
- There is no change in my technical point of view regarding the performance of the price of the GBP/USD currency pair, only the performance on the daily chart below.
- There are attempts to rebound upwards, and the bulls will gain more control in the direction of the currency pair moves towards the resistance levels 1.2785 and 1.2840, and the latter paves the way for a move toward the level
- The psychological resistance is at 1.3000, respectively. On the other hand, and for the same period of time, the return of the currency pair towards the support level of 1.2590 will have more strength for the bears to control the trend and start breaking deeper support levels.
The GBP/USD currency pair will be affected today by the announcement of a package of US economic data, led by the ADP reading of the change in US non-farm payrolls, then the number of jobless claims, and the reading of the ISM index for the services sector.
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