GBP/USD Analysis: Caution Against Selling

According to the performance on the daily chart below, the general trend of the GBP/USD is upward.

  • According to recent trades, the price of the British Pound has gained strong positive momentum against other major currencies.
  • Obviously, this comes after receiving support with a "message" that the Bank of England is serious about keeping interest rates at 5.25% for a longer period than the market expects.
  • Therefore, the most notable aspect of its gains was the rise of the exchange rate of the British Pound against the US Dollar (GBP/USD) towards the resistance level of 1.2732, the highest in three months.
  • Recently, the week's trading closed around the 1.2700 resistance, which confirms the upward shift.

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GBP/USD Latest forecasts:

According to a new analysis by Bank of America, improved data results in the United Kingdom are helping to reinforce the Bank of England's message of "hiking rates for longer." Also, Kamal Sharma, an analyst at Bank of America in London said, "The longer duration of rate hikes has helped the data rebound, which is critical for further recovery in sterling," adding, "Sterling should trade at the top of the reset range."

Meanwhile, these expectations come after concerted efforts by members of the Bank of England's Monetary Policy Committee to counter expectations of anything close to the scale of rate cuts "priced in" by markets. Also, it follows a series of recent economic data releases that have exceeded expectations. At the beginning of last week, markets were expecting cuts of up to 80 basis points, with prices showing that the first cut could come as early as May. However, Bank of England Governor Andrew Bailey led the bank's assault on these expectations, telling the Treasury Committee of Parliament that the bank rate would be held at 5.25% "for a prolonged period." Sharma added, "The BoE has gone out of its way to assure markets that UK rate pricing for cuts in 2024 is misplaced,"

Recently, Bank of England Governor Bailey reinforced the message at the start of last week when he told a regional newspaper that he was concerned. As the battle against inflation would become more difficult, the transition from 4% to 2% is likely to be more difficult than moving from 6% to 4%. Therefore, the message reached the market, which lowered its expectations for rate cuts in recent days. Obviously, that was supporting British bond yields and helping sterling to recover against the euro and dollar.

For his part, Matt Lewis of TopMoneyCompare says that the markets currently see a two in three chance of the Bank of England keeping interest rates at 5.25% until June 2024, after a hawkish shift in expectations.

From the bank policy front, Jonathan Haskell is the latest member of the Bank of England to warn that there is no possibility of cutting interest rates in the coming months as the UK labor market remains very “tight”. Also, Haskell told an audience at Warwick University that the high degree of labor market tightness continues to impose inflationary pressures on the economy. He added, “This will need higher interest rates for a longer period to reach the inflation target sustainably,” he added. Ending by, “That is why I have been voting for higher prices in recent meetings.”

On the part of the Deputy Governor of the Bank of England, Dave Ramsden, in a television interview, that inflation in the United Kingdom has become more “localized” and will “face a challenge to get out of the system.” Ramsden added, “Monetary policy should remain “constrained for a long period of time.”

On the other hand, Bank of America says that interest rates in the United Kingdom will likely remain high during most of 2024. Regarding the outlook for the pound sterling, expectations could continue to rise further as the economic team at Bank of America in the United Kingdom believes. Therefore, the Bank of England is likely to remain on hold for the majority of 2024, “which clearly challenges even the current repricing of the curve.”

GBPUSD Expectations and Analysis Today:

According to the performance on the daily chart below, the general trend of the GBP/USD is upward. Therefore, it may have an opportunity to move towards the psychological resistance level of 1.3000. Especially, if the US job numbers come in lower than expectations and disappointing hopes of tightening US Central Bank policy. On the other hand, over the same period, a return to the 1.2520 support is not ruled out if US job numbers come stronger than all expectations. In general, we expect a calm trading session today, with the economic calendar devoid of American and British data, and investor sentiment in the markets will be important in determining performance.

GBP/USD (Daily Chart)

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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.