- The British pound was the second worst performing G10 currency over the past 24 hours, despite some strong UK economic data that prompted some analysts to maintain a constructive stance on the currency.
- During Tuesday's session, the GBP/USD currency pair attempted to rebound higher with gains towards the 1.2600 level, recovering from strong selloffs that pushed it towards the 1.2518 support level, its lowest in a month and a half.
- These following stronger-than-expected US jobs figures that confirm the strength of the US economy despite the US Federal Reserve's tightening policy path.
The recent performance of the British pound price serves as a warning that February, on a seasonal basis, is traditionally a difficult month for the British pound. In this regard, Justin McQueen, a market analyst at Reuters, warns that this weak seasonal performance tends to continue until mid-March. He said, “Positioning is also a headwind with net sterling longs rising,”. Added, “We are also concerned about the risk of sterling positioning given that speculative bets on sterling appreciation are extended, well above their long-term average,” says George Vesey, Forex expert at Convera. These headwinds are flow-based and point to tactical and global considerations behind the pound's setback, with further selling likely in the short term.
Recently, a number of analysts expect the pound to continue to outperform the G10 foreign exchange market after IHS Global revised upward its UK activity data for January. Also, the Services PMI was upgraded to a reading of 54.3 from a first estimate of 53.8, while the Composite PMI was upgraded to a reading of 52.9 from a reading of 52.5, Which confirms that the UK economy is in a strong expansion mode at the beginning of the year.
In the meantime, the Office for National Statistics confirmed that the unemployment rate in Britain fell to 3.9% in the three months to November from 4.2% in the three months to August. The strength of the labor market will come as a surprise to the Bank of England, which has not seen official unemployment figures since last fall due to statistical difficulties facing the Office for National Statistics, relying instead on less flattering empirical data. Theoretically, the data should support interest rates in Britain and the pound because it indicates that domestic inflationary pressures in the UK will remain high and require interest rates to remain high for a longer period. last week, the Bank of England's monetary policy report expected an unemployment rate of 4.3% for the fourth quarter, compared to 3.9% confirmed by the Office for National Statistics.
For their part, Forex analysts at Barclays Bank say that if the Bank of England sticks to a “higher for longer” policy, the pound could remain supported. “Governor Bailey was careful not to raise expectations about impending interest rate cuts,” they added. Overall, the pound is unlikely to lose its appeal any time soon, which combined with continued outperformance of demand leaves us constructive on its outlook.”
Meanwhile, the unemployment rate is at lower levels than the Bank of England forecast, the odds are that wages will remain high. This could contribute to domestic inflationary pressures and put pressure on the bank to keep interest rates higher for longer. Therefore, if the bank cuts interest rates after the US Federal Reserve and the Bank of England, the pound could remain supported.
GBPUSD Expectations and Analysis Today:
Despite yesterday's rebound, the general trend of the GBP/USD pair is still bearish and breaking the support 1.2600 will still support the bears. At the same time, it may take us to buying levels, and according to the free direct trading recommendations, we recommended buying from the support level 1.2550 and below it, but without risk. On the other hand, according to the performance on the daily chart above, the bulls will not regain control of the trend without moving towards the resistance level of 1.2775, the British pound, in a buying position from the lowest levels. Finally, GBPUSD is not awaiting important and influential data from Britain or the United States of America.
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