- The US dollar continued to gain against other major currencies amid safe-haven demand, as well as investor and market anticipation of the US Federal Reserve's announcement today and the release of US employment figures at the end of the week.
- As a result, the pound sterling against the US dollar “GBP/USD” was subject to selling pressure that pushed it towards the support level of 1.2640 before it stabilized around 1.2700 at the time of writing.
- In addition to the Fed's announcement, the pound sterling will react to the Bank of England's announcement on Thursday.
The Bank of England will take a “hawkish” tone on Thursday because it believes it is too early to encourage market participants to bet on imminent interest rate cuts. Although inflation is heading below the levels set in the bank's November forecasts, analysts at Berenberg Bank say that "policymakers will continue to take a hawkish tone."
Recently, the British central bank is expected to maintain interest rates at current levels and issue a new set of fiscal forecasts, including expectations for lower inflation. These forecasts and associated guidance are likely to trigger any market reaction. Callum Pickering, chief economist at Berenberg, asks: “The key question is: Will policymakers begin to shift even slightly from their hawkish bias toward a more neutral stance?”
In December, the Bank of England's Monetary Policy Committee maintained its guidance that “further tightening” would be needed if inflation remained firmer than expected. However, most of the economic preview we read showed an expectation that this phrase would be dropped in recognition that a “pivot” to more flexible policy was underway. Nevertheless, the analyst says the rise in inflation in December to 4.0% from 3.9% may mean that the “hawks” in the Monetary Policy Committee “may not budge even this time.” This could be a “tight” surprise that could boost UK bond yields and the pound sterling price.
“While split decisions are not unusual, we doubt the Bank of England can shift fully toward neutral guidance until all policymakers agree that interest rates are high enough,” the analyst added. Also, it will be important for any pivot to have evidence that UK core inflation is on track to reach 2.0%, which the analyst does not believe will happen until later in the year. In the future, the analyst believes that in February: we may get a weak signal that the Bank of England has become less stringent. In March, further progress in inflation would open the door for hawks to abandon their preference for further increases. Moreover, May will include a new set of forecasts; The Bank of England should be able to shed its hawkish bias and signal that monetary policy could become less tight. In June: the first cut will be 25 basis points.
GBPUSD Expectations and Analysis Today:
As we mentioned before, GBP/USD forecasts show that it is the most resilient to the strength of the US dollar compared to other currencies. Immediately, the picture may change after the reaction to the announcement of the US Central Bank’s decisions, then the announcement of the Bank of England, and the announcement of the US job numbers in successive order. According to the performance on the daily chart, the resistance levels of 1.2775 and 1.2860 will be supportive of the upward trend. Furthermore, all eyes are on the psychological resistance of 1.3000, which will move the technical indicators towards strong saturation levels for buying. On the other hand, over the same time period, the support level of 1.2600 will remain the most important for causing a downward shift in the direction of the sterling dollar.
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