- The GBP/USD exchange rate traded widely last week, generally heading lower amid economic data releases from the United States.
- Since the beginning of this week, the GBP/USD exchange rate has been attempting to rebound, but its gains have not surpassed the resistance level of 1.2706 before settling around 1.2675 at the time of writing this analysis.
- Overall, the US dollar began the week's trading on a downward trajectory, as recent US durable goods orders for January fell below expectations.
According to economic calendar data, the index recorded a -6.1% reading, lower than the market's expectations of a 4.5% decline, following a 0.3% drop in December. This marks the largest monthly decline in durable goods orders since April 2020, leading to a decline in the US dollar. However, a wave of cautious trading, perhaps due to ongoing shipping disruptions in the Red Sea, swept through the markets, supporting the safe-haven currency, which managed to recover from its initial losses.
Moving to last Wednesday, the US dollar struggled to catch up with bearish revisions to US Gross Domestic Product (GDP) for the fourth quarter of 2023. The second estimate recorded a 3.2% growth rate for the fourth quarter, down from the expected 3.3%. Last Thursday, the US dollar faced new volatility amid a larger-than-expected increase in US jobless claims and a slowdown in the core Personal Consumption Expenditures (PCE) price index. Although the Fed's preferred inflation gauge decreased from 2.9% to 2.8% in January, modest contraction indicates continued price pressures.
Generally, the British pound sterling began the week's trading without a clear direction, as limited macroeconomic data releases last week left the pound sterling with nowhere to go. However, new reports issued by economists on Tuesday, warning UK Chancellor Jeremy Hunt against unfunded tax cuts in this week's Spring Budget, kept the British pound sterling confined to a narrow range. Also, analysts had cautioned the Chancellor that any unfunded tax cuts risk repeating the disastrous fiscal shortfall of 2022, which led to a historic low for the pound sterling against the US dollar.
The question now: Will the UK's Spring Budget stir up volatility in the British pound sterling?
Looking to this week, the primary driver of the US dollar exchange rate movement is likely to be the release of the UK's Spring Budget tomorrow, Wednesday. Following the technical recession in the UK in the second half of 2023 and Chancellor Liz Truss's mini-budget, sterling investors will closely scrutinize the budget to see if the Chancellor can strike the right balance to boost growth without risking further unfunded spending commitments.
Another round of high-impact US data is expected this week. Today, Tuesday, it is expected that the ISM Services Purchasing Managers' Index for February will remain in the growth zone, and this in turn may strengthen the US dollar exchange rates. However, the main event is Friday, when the US Non-Farm Payrolls report for January is scheduled to be released. Last month's data saw new job creation rise to the highest level in one year. If January data confirms the strength of the US labor market, the US dollar may rise at the end of the week.
GBPUSD Expectations and Analysis Today:
According to the performance on the daily chart above, the price of the British pound against the US dollar GBP/USD is trying to reverse the recent bearish outlook. As we mentioned before, stability above resistance 1.2775 will be important to start controlling the bulls. The shift will strengthen by moving towards the resistance 1.2840, which in turn will give momentum to expectations for the psychological resistance level of 1.3000. On the other hand, the support at 1.2600 will remain important to maintain the bearish outlook. Performance may remain in narrow ranges until the reaction from the US Central Bank Governor’s testimony and the US job numbers.
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