- At the end of last month, the pound fell to $1.26, close to its lowest level since February 19, and is on track to lose about 1% against the dollar in the first quarter.
- At the start of trading in the first week of April, the GBP/USD currency pair fell to 1.2540, close to breaking a new psychological support level.
- Recently, Sterling losses widened as investors digested cautious comments from central bank officials.
- In this regard, Fed Governor Waller noted that recent inflation data supports the Fed's case for holding off on cutting the target short-term interest rate, although he did not rule out the possibility of a rate cut later in the year.
In the UK, Bank of England official Haskell said rate cuts should remain "off the table," while colleague Mann warned against over-expecting rate cuts this year, suggesting that the UK is unlikely to move ahead of the Fed. At its March meeting, the Bank of England kept interest rates unchanged, with two policymakers who had previously advocated for rate hikes switching to a neutral stance, tilting the central bank's decision towards a more dovish stance than expected.
Looking ahead to Bank of England policy, MUFG Bank suggests there is a 50% chance of a rate cut in June and a 20% chance of a move in May. Stated, "There is still a strong belief that the BoE will need to see more evidence in the coming quarter that core inflation and wage pressures are continuing to slow to give the BoE enough confidence to start cutting rates."
Consistently, Danske Bank has argued that UK inflation will fall sharply. According to the data calendar, headline inflation in the UK fell to 3.4% in February from 4.0% previously and is likely to fall sharply in the next two months, especially with retail energy prices falling in April. Danske Bank added in this context; "Data releases last month generally pointed to further easing of price and wage pressures in the UK. More broadly, the large base effects from energy prices are expected to bring headline inflation back to 2% in Q2 2024."
Meanwhile, Danske expects lower inflation to allow interest rates to be cut in the second quarter and weaken sterling. The bank added; “We continue to expect the Bank of England (BoE) to position markets for a rate cut at its May meeting which includes updated forecasts, delivering the first 25 basis point cut in June. However, we stress that the recent cautious turn in vote split, statement wording, and Governor Bailey's comments opens the door to a cut already in May.
Regarding the expected movement of the British pound:
The British pound sterling's exchange rate against the US dollar (GBP/USD) decreased by 0.0073 or 0.58% to reach 1.2540 on Monday, April 1st, down from 1.2623 in the previous trading session. Thus, it is expected that the British pound will trade at 1.25 by the end of this quarter, according to the overall global models of Trading Economics and analyst forecasts. Looking ahead, we anticipate it to be trading around 1.21 within 12 months.
GBPUSD Expectations and Analysis Today:
According to the performance on the daily chart attached, the price of the GBP/USD currency pair is on the path of a descending channel. Its downward momentum may culminate in a move towards the psychological support level of 1.2500.
From this support and below, the technical indicators will move towards strong saturation levels for selling. As we expected, the trend for the sterling/dollar currency pair will remain bearish until the reaction to the announcement of the US jobs numbers at the end of the week, which will have a reaction on the future of the US Central Bank’s policy.
Currently, we prefer to buy sterling dollars, but without risk, from the support levels 1.2490 and 1.2400. On the other hand, over the same time period, the resistance 1.2775 will remain the most important for bulls to start controlling the trend. Today, the reading of the British manufacturing Purchasing Managers' Index will be announced, then the number of available American job opportunities, the first releases of American job numbers for this week.
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