Supported around 1.2616, eyeing potential rise to 1.27 resistance. Key US CPI and UK economic data to drive direction, with market weighing Fed and BoE rate cut expectations.
- The GBP/USD exchange rate remains well supported, and heavy economic calendars in Britain and the US this week could provide an opportunity for a return to the 1.27 resistance level.
- The price of the sterling dollar currency pair is stable at the level of 1.2616 at the time of writing the analysis.
- In general, the price of the US dollar is still the best performing currency in 2024, but it has lost some momentum recently and failed to cause any significant damage against the pound sterling, despite the release of excellent US economic data.
- Remarkably, the price of the pound sterling has withstood the onslaught of the US dollar better than its counterparts in the G10 currencies, indicating a resilience that is unlikely to fade any time soon, especially if data this week confirm that the British economy has regained its strength at the beginning of the year.
US data surprises have been very strong over recent weeks, and we will need to see this pattern repeated in the coming days to keep the US dollar's positive momentum going. We wonder whether we have reached “peak surprise” regarding the US economy and the dollar; That is, expectations are already so high that the currency will have a greater reaction to any disappointments caused by lower data. It may be that we need more attractive releases to keep the US dollar's momentum going. That's why Tuesday's US CPI release will be so important: if we get a report that breaks the consensus, we'll be looking for further appreciation that pushes the pound-dollar exchange rate down to medium-term support at 1.2500/20 (tested last week). This support appears strong, and we believe that inflation in the United States of America should exceed the expected figure of 0.2% on a monthly basis, which the markets expect by some margin. (YoY forecast = 3.0%).
But if US inflation numbers come in lower than expected, we will be looking at a strong rebound in GBP/USD towards the 1.27 resistance level which has been a magnet for the pair through most of 2024. Also keep an eye on US retail sales on Thursday, as they could. The expected 0.1% month-on-month improvement indicates that the US consumer remains unfazed by the Fed's rate hikes, which could indicate upside risks to inflation.
In contrast, the British economic calendar is busy with inflation, wages, GDP and retail sales being thrown at investors, which has already reduced expectations for the number of interest rate cuts that will come from the Bank of England’s Monetary Policy Committee (MPC) in 2024.
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What is Expected for GBP in the Coming Days?
In this regard, Tom Riddell, an expert at Westpac Bank, says: “The price of the pound sterling has returned to the 1.26-1.30 range, but it is still vulnerable to the market’s interpretation of this week’s data and the changing bias of the index.” Comments from Monetary Policy Committee members.
If the data beats expectations, we expect bets on interest rate cuts to decline further, leading to a rise in sterling against the dollar. UK monthly wages data will be released on Tuesday, with the 3M/Year reading expected to reach 5.7% for December. US inflation is due on Tuesday, and markets expect headline CPI inflation to reach -0.3% monthly and 4.1% annualized in January, with the important core CPI rate at 5.2% annualized.
GDP data in Britain for December 2023, the fourth quarter, and the entire year 2023, is scheduled to be released on February 15 at 07:00 GMT; The market is looking at -0.1% on a monthly basis, -0.1% on a quarterly basis, and 0.2% on a yearly basis for the respective issues. Friday brings UK retail sales data. One need only remember that January's release of December retail figures was the biggest surprise of the month, sending the pound tumbling. Another weak result could spell a bleak end to the rally, although we note that survey data suggests the economy regained strength in January, suggesting the numbers could land on the positive side.
As wage growth continues to outpace inflation, the outlook for UK consumers has improved significantly, and this will provide good conditions for retailers in the coming months.
GBP/USD Plan Today:
So far, according to the performance on the daily chart above, GBP/USD rate is in a neutral position with a downward slope supported by the movement on the cusp of support at 1.2600. If UK data results are lower than expectations and US data results are stronger than expectations, bears may find an opportunity. Stronger to move towards stronger support levels, the closest of which are 1.2550 and 1.2490, and from the last level, the technical indicators will head towards strong saturation levels for sale. On the other hand, during the same time period, the 1.2775 resistance will remain important during that time period as the bulls have strong control over the trend.