- For four consecutive trading sessions, GBP/USD has been trying to rebound, but the rebound gains stopped at the 1.2668 resistance level before settling around 1.2626 at the time of writing.
- So far, the US dollar remains the strongest, supported by the strong performance of the US economy despite the tightening path of the US central bank, contrary to expectations that an economic recession was imminent under the bank's policy.
In general, the pound sterling against the US dollar is likely to benefit from the release of the minutes of the FOMC meeting, as hawkish comments are expected from Federal Reserve officials. Remember that the US Central Bank kept US interest rates unchanged as expected in its latest decision, but dashed hopes of seeing interest rate cuts any time soon. Ultimately, Speeches by FOMC members and higher-level data such as CPI numbers and US non-farm payrolls numbers also dampened expectations for easing by March or May.
However, any dovish comments in the minutes of today's FOMC meeting could lead to some profit-taking due to US dollar gains, as traders’ factor in the idea of seeing an upbeat speech from policy makers. Meanwhile, monetary policy hearings turned mostly bullish for sterling, with the central bank suggesting an upward trend for the economy soon despite its slide into recession.
Recently, the British pound continued its short-term decline against the euro but showed more stability against the weaker US dollar broadly after Bank of England Governor Andrew Bailey suggested that the bank may cut interest rates before inflation falls to the 2.0% target. According to currency trading platforms, the pound faced moderate pressure against the euro this week, witnessing losses extending to 1.1670 after Bailey told a committee of lawmakers that the bank does not need inflation to return to the 2.0% target before cutting interest rates. Additionally, the pound rose against the US dollar during yesterday's London morning session and maintained its advance above 1.2610; these movements are more related to the retreat of the "mighty dollar" as it catches its breath after already strong performance in 2024.
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Lately, Bank of England Governor Bailey's admission encouraged markets to bet strongly that the bank will cut interest rates next June. Bailey made the comments before the Treasury Select Committee and appeared alongside fellow Monetary Policy Committee (MPC) members Swati Dhingra and Megan Green. The governor was careful not to encourage a significant repricing in interest rate cut expectations, saying the economic recession in the second half of 2023 was not a major cause for concern. He added, “If you look at recessions dating back to the 1970s, you will find that this is the weakest by a long distance.” “0.5% is a very weak recession.”
Generally, the pound sterling enjoyed a strong start to the year as market expectations for an early cut in interest rates from the Bank of England declined, but this repricing ended after last week's inflation reading for January showed that inflation came in at levels lower than market and Bank of England expectations. Meanwhile, Inflation is expected to fall to around 2.0% target in April as lower household energy bills take effect, but the bank expects it to return to around 3.0% by the end of the year. Bailey added, this expectation means that the bank should be vigilant and not rush into the process of lowering interest rates.
GBPUSD Expectations and Analysis Today:
The price of the GBP/USD pair formed lower highs and higher lows to consolidate within a symmetrical triangle pattern on the hourly time frame chart. Currently, the price is testing the resistance level and may be ready to decline again to support again. Also, the 100 SMA is below the 200 SMA to confirm a bearish shift. Technically, sustained downward pressure may trigger a breakout below support and a fall at the same height as the chart formation, which extends around 200 pips.
However, the price is still above the moving averages, so it may hold as dynamic support near the bottom of the triangle at the key psychological mark of 1.2600. At the same time, the Stochastic indicator is pointing downward, confirming that sellers are in control and can pull the pair down. Also, the RSI has room to move down before reaching the oversold zone, but the oscillator appears to change course midway. A rise to the upside may indicate that buyers refuse to pull back.
Overall, it is still possible for a surge in bullish pressure to trigger a breakout above the top of the triangle and a rally of the same size as the triangle.
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