The British pound continues to see a lot of noise, as traders recognize that London is going to be hesitant in cutting rates rapidly, just as the Americans could do.
GBP/USD
The British pound has gone back and forth during the trading session on Monday as we continue to see a lot of noisy behavior and quite frankly, I think misguided behavior when it comes to the idea of interest rate cuts.
This is a market that I think will continue to look very noisy, but I also think we have to ask questions of whether or not this market has broken out, pulled back to find support, and will continue to go higher, or whether or not it is a situation where we continue to see the market get the whole Federal Reserve ideas wrong.
With the nomination of Kevin Warsh, it will be interesting to see that traders out there might see the British pound drop to the 1.35 level. They have suggested that the Federal Reserve is going to cut rapidly and quite frankly, that’s been wrong for 18 months and I just don’t see that changing anytime soon.
Potential Scenarios
That being said, if we turn around and break above the 1.38 level, I think that’s a very bullish sign and the British pound take off. Somewhere in this general vicinity we need to see buyers, and buyers coming into the picture could continue the overall uptrend. It would make sense from a longer-term perspective, but if we don’t hang out here and rally, then 1.35 I think gets targeted next.
It should be noted that the Bank of England is very hesitant to cut rates rapidly as well. So, if there’s one currency that I think will remain stubborn against the US dollar, even if the dollar starts to strengthen, it’s probably this one.
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