During last week's trading sessions, the exchange rate of the British Pound against the US Dollar “GBP/USD” came under pressure as the impressive November rally failed and turned into a decline. However, the upward trend for the British Pound is by no means over, especially if UK data and messages from the Bank of England turn in its favor. Recently, the corrective losses for the currency pair reached the support level at 1.2502 before stabilizing around the 1.2580 level at the time of writing this analysis.
GBP/USD is trading relatively stable ahead of a busy week for global currencies, and price movement is expected to be full of bumps. Moreover, we cannot lose sight of the broader picture, which still favors further upside for the pound due to technical settings and evolving interest rate expectations from the central bank. Commenting on the performance of the sterling dollar. Tanmay Purohit, technical analyst at Société Générale, says the pound's decline "should remain short-lived." Adding, “GBP/USD recently reached a temporary barrier at 1.2720, representing a 61.8% retracement from July,”. He ended by, “Testing this resulted in a short-term downward movement, the 200-DMA at 1.2460/1.2420 is the next support.” Therefore, if the analyst is correct, the pullback will extend to the 200-day moving average at 1.2460/1.2420.
Generally, this week is filled with events regarding UK data, and the fundamental rule is that the British Pound is likely to rise if the actual number is higher than the expected reading. However, we expect the currency to show a more bearish reaction due to disappointments. Simply, that’s because the British Pound has risen strongly over the past two weeks, and the market is adapting to a series of recent bullish surprises in the data. Today, the market is waiting the release of wage data, with the market expecting average income (total wages) to reach 7.5% for October, down from the previous 7.9%.
On the data level, the average income (regular wages) is expected to reach 7.4%, a decrease from 7.7% in September. On Wednesday, the Gross Domestic Product (GDP) figures for the UK for October are expected to be released, with a consensus forecast of 0.2% on a monthly basis in October, an increase from -0.1% in September. Moreover, the interest rate for the three-month period is expected to reach 0.3%, up from 0.1%. nearby, Thursday will see the Bank of England's decision on interest rates and guidance updates. Also, the week concludes with the release of the S&P Global Purchasing Managers' Index for December, which comes a week earlier due to the imminent Christmas holiday. Likewise, the manufacturing sector is expected to record a reading of 47.5, services a reading of 51.2, and the composite index a reading of 51.
Concurrently, no change in the British interest rate is expected, but the reaction of the currency market will depend on the tone of the guidance. Especially, on the issue of possible interest rate cuts. Clearly, the Bank of England has been a source of support for sterling recently, with most policymakers making it clear that they are uncomfortable with increasing market expectations of interest rate cuts in 2024. Therefore, rising expectations of cuts affect real-time bond yields and therefore lending rates, thus easing financial conditions and risk. The bank's efforts to reduce inflation.
Commenting on the event, James Smith, an economist at ING Bank, said: “Markets are pricing in three interest rate cuts in 2024, and we doubt the bank will be very happy about that. We expect policymakers to emphasize that interest rates should remain tight for some time.” ING adds that it expects some “tight forward guidance,” including a line on keeping interest rates tight for an extended period of time.
GBPUSD Expectations and Analysis Today:
According to the performance on the daily chart below, there is stability in the performance of the GBP/USD pair until the reaction to the results of important economic data in addition to global central bank policy announcements. In general, the bears’ move in the currency pair below the 1.2480 level will enhance the downward correction, and the next most important levels will be 1.2370 and then 1.2300, respectively. On the other hand, over the same period of time, bulls will not regain control over the trend without returning to the 1.2730 resistance area again.
