- The GBP/USD exchange rate entered the new week's trading well balanced around the middle of the medium-term balance range that extends across the gap between 1.20 and 1.33 but with short-term expectations contingent on market appetite for carry trades and UK economic growth numbers on Friday.
- For three consecutive trading sessions, the price of the GBP/USD currency pair tries to rebound to the upside, but its gains did not exceed the resistance level of 1.2800, before settling around the level of 1.2780 at the time of writing, waiting for anything new.
The British pound entered the new week's trading with nearly a month of losses against the stronger dollar on a large scale, but it may benefit in the coming days from the near technical support around 1.2627 on the charts, which was tried and tested in the selling operations that followed last Thursday. Bank of England (BoE) interest rate decision. But with GBP/USD already reversing more than 50% of its Q2 rally over the course of July, price action over the coming days will be a key determinant of whether a broader recovery from last year's record low still needs more momentum, or if a deeper setback is in the making.
“Britain and US spreads have narrowed from the peaks seen in early July, but remain positive for the pound sterling, which should help,” wrote Shaun Osborne, Scotiabank's chief forex strategist, “Intraday price action has turned slightly weaker again, with sterling's gains capped at 1.2745, which will be disappointing for the sterling bulls,” he added.
Overall, GBP/USD's rally in recent months has been supported by a significant increase in the Bank of England's rate, which rose to 5.25% last week in a policy decision that made UK borrowing costs the second highest in the world of currency pairs. The G10 is after the US while it is likely to enhance the attractiveness of the Sterling as a “carry trade” candidate.
Banking analysts in North America and Europe have been the most enthusiastic proponents of buying GBP in recent months, although a sharp correction in GBP/USD from levels above 1.30 psychological resistance in mid-July has left it on the charts at an inflection point in direction.
“I'm not sure we'll get enough today to test these levels and this pair may consolidate a bit higher after the recent sell-off from July 14th when everyone turned the greenback bearish. And if we get any moves higher, I would sell it as I think GBP/USD will really test the 200-day moving average around 1.2317 in the coming weeks,” he added.
Recent losses have left sterling almost entirely flat at the midpoint of the current medium-term equilibrium or “fair value” range, which spans the distance between 1.2015 and 1.3353 when GBP/USD is discounted for past and current inflation rates, interest rates, and their respective spreads. But how GBP/USD evolves from here will depend in large part on whether economists underestimate the expected July rebound in US inflation, which was last read on Thursday, and on how the British economy fares in the face of economists' forecasts.
Elsewhere, while the Federal Reserve has already signaled that the end of its interest rate cycle is near and the hurdle is high to raise borrowing costs further, the US dollar is tipping higher in response to higher-than-expected inflation so Thursday's data will be a potential pickle in case of any rebound beforehand. The GBP/USD also risks faltering further ahead of the weekend if the release on Friday of UK GDP data for June and the second quarter challenge market optimism about the outlook for the UK economy and the prospect of further BoE rate hikes in the coming months. coming.
GBP/USD Technical Outlook
According to the performance on the daily chart below, the general trend of the GBP/USD currency pair is still bearish, and there are attempts to rebound to the upside, but the success of the rebound will depend on the return of stability above the psychological resistance at 1.3000 again. On the other hand, and for the same period of time, the return of the currency pair below the support level at 1.2675 will be important for the bears' continued strength of control over the general trend.
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