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GBP/USD Weekly Forecast: Nervous Reactions to Inflation Data Create Declines

Declines which started in the GBP/USD last Wednesday produced violent moves lower, this as U.S inflation data created a massive change in mid-term outlooks for the currency pair.

GBP/USD Weekly Forecast - 14/04: Inflation Hits Hard (Chart)

  • Financial institutions who had been holding onto their notions the U.S Federal Reserve would cut its Federal Funds Rate in June of this year were hit by a swift hard punch last week.
  • The GBP/USD which had been trading at a high of nearly 1.27085 on late Tuesday and seemed to be sustaining value on Wednesday, abruptly was walloped by stronger than anticipated U.S Consumer Price Index numbers.

The higher inflation numbers sent an immediate shiver into Forex and the GBP/USD was not immune to the sudden strength of the USD. The rapid selling in the GBP/USD was strong on Wednesday and the currency pair fell to around the 1.25200 mark before recovering some buying momentum. However, the ability of the GBP/USD to hold onto slightly higher ground on Wednesday and Thursday, while moving around the 1.25600 sphere was suddenly hit again by poor outlook from U.S consumers regarding prices on Friday. The GBP dropped violently again and this time the 1.25000 level was proven vulnerable.

GBP/USD Lower Prices and Bearish Conditions as New Reality Emerges

Having watched not only the 1.26000 mark, but also the 1.25000 level shown to be vulnerable support levels, this all within only a handful of days likely show a new reality emerging within the thinking of financial institutions. While the 1.26000 level had been seen as equilibrium by many market participants the past few months and actually demonstrating a significant amount of value above since the middle of December, this ratio was demolished by the middle of last week.

The current value level of the GBP/USD has now returned to a level not seen since the second and third week of November 2023. The ability to penetrate the 1.25000 level on Friday of last week and maintain value beneath is a warning sign. Early trading this week will have to be done carefully. If a speculator thinks the GBP/USD is oversold, while this may be proven correct, the short-term may prove to be quite challenging as financial institutions brace for the potential the U.S Fed may remain in a difficult position moving forward for the next couple of months.

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    1.25000 Targets in the GBP/USD and Speculative Trading

    Certainly early this week some traders may believe the 1.25000 mark will become a buying target for financial institutions, but a look at a one year technical chart shows the GBP/USD has attained lower values when a lack of interest rate cuts was viewed as the reality. Economic data this week will prove interesting from the U.S and U.K, and the data results will factor into the GBP/USD.

    • Retail Sales numbers will come from the U.S on Monday and affect market sentiment. Weaker Retail data from the U.S will be needed to spur the possibility of more buying in the GBP/USD.
    • On Wednesday Consumer Price Index statistics will come from the U.K and the GBP/USD will react to the numbers.

    GBP/USD Weekly Outlook:

    Speculative price range for GBP/USD is 1.23925 to 1.25695

    Having sustained a huge drop in value last week, the GBP/USD will be watched closely to see if there are speculative reactions in the short-term. If the price range of the GBP/USD stays within its lower elements early this week, this could set the stage for an additional test of lower prices. If geo-political conflict in the Middle East stays a storyline, this could also propel some USD strength as a safe haven asset in the near-term.

    While the GBP/USD does look like it has sold off too much, some financial institutions may believe the Bank of England will have to cut their interest rates before the Federal Reserve, which could be sparking some of the GBP/USD weakness too. Traders must remain alert early this week and use risk management wisely.

    Even as a major currency pair the GBP/USD, still sustained notable volatility last week as nervous sentiment swept through Forex based on USD strength causing technical levels to be crushed. Traders looking for upside this week should not get overly ambitious. Quick hitting trades may prove to be a solid risk taking tactic if conditions in the GBP/USD remain dynamic.

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    Robert Petrucci
    About Robert Petrucci
    Robert Petrucci has worked in the Forex, commodity, and financial profession since 1993. Important aspects of his work involve risk analysis and advisory services. As an advisor in a Family Office he maintains a conservative approach for wealth management and investments. Robert also works in private finance with investors and companies delivering financial and management services.

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