- Despite the strong positive performance of the sterling currency pair against the US dollar GBP/USD at the beginning of this week’s trading, with gains that reached the 1.2428 resistance level, its highest level in nearly two months, the pair fell towards 1.23.
- Therefore, we advised our valued clients to activate quick selling operations, and indeed the currency pair bounced back down with losses that extended to the 1.2343 level, which is stable around it at the time to write this analysis.
Further Downward Pressure Is Likely
Overall, the technical setup for the GBP/USD exchange rate has improved significantly after Friday's rise. However, any further upward progress will be tested by the release of UK GDP data this week and speeches by Bank of England Governor Andrew Bailey and the Reserve Bank's Jerome Powell from US Federal Reserve. Recently, the price of the pound sterling rose by more than a percent on Friday after the release of US labor market numbers, which came in lower than expected, which further reduced the possibilities of raising US interest rates again and increased the possibilities of lowering interest rates in 2024. Consequently, the results of the data had affected On US bond yields, which boosted “risk” assets and put pressure on the dollar, which lost strength against all its G10 counterparts.
Accordingly, technical analysts say that the GBP/USD outlook has now improved and are now looking for a test of the key 200-day moving average to indicate a more decisive shift in direction that would favor further gains for the pound. Commenting on this, Kenneth Brough, an expert at Société Générale, says: “The GBP/USD pair recently achieved the previously confirmed H&S index target and formed a temporary bottom at 1.2035. therefore, the decline has paused, creating a small base. Also, It will be interesting to see if the pair is able to gradually re-establish itself above the 200-DMA near 1.2440; This breakout will be necessary to confirm the extended bounce. Moreover, failure to cross will mean a continuation of the downward movement. Meanwhile, the next potential support levels are at the 1.1980 area and the March low at 1.1800/1.1745.
Overall, the most important data release this week will be the UK GDP for the third quarter at 07:00 GMT on Friday. This will be important information for Forex markets - which focus on growth differentials - to make a judgment on the British pound. Recently, The British economy grew by 0.2% on a quarterly basis in the second quarter and 0.6% on an annual basis. Furthermore, all signs point to a slowdown from these levels. But before the GDP release, we have two of the Bank of England's chief economists - Governor Andrew Bailey and Chief Economist Hugh Bell - to look forward to.
Markets will be looking to the comments of the Governor of the Bank of England to comment on the Bank of England's policy decision and update the guidance last week. Bailey's latest speech saw the use of a mountain-top analogy to describe the UK's interest rate expectations, suggesting they will remain at 5.25% for an extended period. On Wednesday at 09:30, Bank of England Governor Bailey will speak at the “Financial System Conference” hosted by the Irish Central Bank: Achieving good outcomes in an uncertain world. Bailey will deliver the keynote address and will be followed by remarks alongside other committee members. Therefore, it is likely that he will address the UK economy and interest rates at some point in his appearance in Dublin.
After the interest rate decision last Thursday, Bailey said in a media interview that he would have to “rely on” market developments after the Bank of England’s decision. Although the bank announced that interest rates would remain at current levels for an extended period, expectations of interest rate cuts increased, leading to the first full rate cut being priced in September 2024. This development explains why the pound has struggled to advance in the wake of the bank's decision. England. However, Billy's subsequent intervention and block were conspicuous and seemed to stabilize Sterling. We expect both Bill and Billy to confirm this message in their upcoming speeches.
If the market buys it, the pound could remain supported. If not, further downward pressure is likely.
On another level, the data pulse from the United States of America will decrease over the coming days, which means that more focus will be placed on the guidance provided by members of the Federal Reserve. Moreover, among our concerns is FOMC member Waller, who is scheduled to speak at 15:00 GMT on Tuesday, followed by Williams at 17:00. But it will be Fed Chair Powell who will be most interested in speeches on Wednesday at 14:15 and again on Thursday at 19:00.
Substantially, some of the speeches will have nothing to do with monetary policy, but given Powell spoke twice. Clearly, we can expect some reference to the economy and interest rate expectations.
GBP/USD Outlook
According to the performance on the daily chart below, the price of the British pound against the US dollar GBP/USD is in the stage of breaking the general downward trend and moving towards the resistance levels 1.2445 and 1.2560 confirming the strength of the bulls’ control over the trend. On the other hand, over the same period, a return to the vicinity of the support level 1.2270 will have a strong and direct impact on the bulls’ aspirations to control the trend. I still prefer to sell the currency pair from every upside level.
Ready to trade our Forex daily forecast? We’ve shortlisted the best regulated forex brokers UK in the industry for you.