GBP/USD Analysis: Bulls' Attempts to Maintain Their Gains

The positive shift in investor sentiment favoured gains for the GBP/USD, reaching levels above the resistance of 1.2560, the highest in over two months. Despite the US dollar gaining positive momentum from yesterday's economic data results, the GBP/USD faced limited selling pressure, pushing it towards the support level of 1.2448 before stabilizing around 1.2511 at the time of writing, on a US holiday. Therefore, this confirms the bulls' commitment to maintaining recent upward rebound gains.

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What is expected for the GBP/USD pair in the coming days?

The British pound risks a swift upward move that may surprise the market, according to trading experts at the French investment bank Société Générale. Olivier Korber, a forex analyst at the bank, mentioned that there is a fading consensus on economic gloom in the UK and its stance on positive surprises, which will be reflected in the pound's rise against the US dollar. He added, "The dollar is declining sharply, and foreign exchange positions are quickly turning. Given that extreme negativity affects the British pound, there is a risk that the GBP/USD pair may move towards the 1.30 resistance much faster than our expectations."

Overall, economists at Soc Gen appear more optimistic about the UK's economic growth prospects than consensus, forecasting growth of 0.6% in 2024 versus 0.8% for the Eurozone and 0.9% for the US. Also, the consensus sees growth of just 0.4% in the UK, “which would make the UK economy even lower than Sweden and become the slowest economy next year.” Adding, “These leaves almost no room for negative economic surprises in the UK versus its peers.”

Economic surprises are a powerful driver of Forex foreign exchange markets because they change investors' expectations about future central bank policy. Recently, currencies tended to benefit when economic data surprises to the upside, but the pound has struggled since August as UK data was disappointing.

Meanwhile, with the UK's economic outlook at rock bottom, the only way is up from here. The analyst is also concerned that the market is “pricing in” an aggressive regime of Bank of England rate cuts for 2024. “BoE and Fed implied rates for June 2024 have converged, with the first-rate cuts expected by mid-year,” he said. Adding, “But markets may be very pessimistic regarding the Bank of England given the growth and inflation trajectories in the US and UK.” Finally, he cites a message from Bank of England Governor Andrew Bailey stating that “it is too early to talk about cutting interest rates.”

The price of the pound sterling rebounded this week after Bank of England Governor Bailey and other members of the Monetary Policy Committee confirmed that it was too early for the market to cut interest rates. In fact, Monetary Policy Committee members Mann and Ramsden have said that raising interest rates may be appropriate in the future. Also, Société Générale notes that inflationary pressures in the UK will continue due to wages, which have risen much faster than the US and the Eurozone and expects inflation-adjusted wage growth to remain firmly in positive territory.

For its part, the British Treasury announced on Tuesday that the minimum wage in the United Kingdom will increase by more than £11.44 per hour as of April next year, which is more than 10% and exceeds the inflation rate. It was also decided to apply the rate to people between the ages of 21 and 22 for the first time. The Treasury added: This is the largest ever increase in the National Living Wage, worth more than £1,800 a year for a full-time worker.

GBPUSD Expectations and Analysis Today:

According to the performance on the daily chart below, the price of the British pound against the US dollar GBP/USD is still moving steadily within a recently formed upward channel supported by a move towards and above the resistance 1.2550. therefore, the upward shift will be confirmed by moving towards the resistance levels 1.2620 and 1.2700, respectively, which are sufficient at the same time to push technical indicators are towards strong saturation levels for buying. On the other hand, over the same period, the return of the sterling dollar price towards the support level of 1.2330 will be a threat to the bulls’ current control. Considering the American holiday, the focus today will be on announcing the Purchasing Managers' Index readings for the British manufacturing and services sectors, in addition to investor sentiment in global markets.

GBP/USD (Daily Chart)

Mahmoud Abdallah
Mahmoud has been working fulltime in the Foreign Exchange markets for 12 years. Offers his analysis, articles and recommendations at the most renewed Arabic websites specialized in the global financial markets, and his experience gained a lot of interest among Arab traders. Works on providing technical analysis, market news, free signals and more with follow up for at least 12 hours a day, and aims to simplify forex trading and the concept of trading for his audience.