- According to recent trading, the price of the US dollar generally recovered last Thursday, with a feeling that the markets may have overreacted to the US inflation data in the same week.
- From a sterling perspective, tensions were rising ahead of this week's crucial inflation data.
- According to the platforms of Forex currency trading companies, the exchange rate of the pound against the US dollar (GBP/USD) reached its highest levels in 5 weeks at 1.2711 before falling to just below 1.2650.
Regarding the expected price of the sterling dollar in the coming days, Nordea expects GBP/USD to weaken to 1.22 support over 3 months as the Fed rejects US interest rate cuts while Europe moves to lower borrowing costs. According to Forex market trading, the exchange rate of the British pound against the euro (GBP/EUR) remained in relatively narrow ranges and settled around 1.1650. ING Bank commented; “Our preferred call at this point is not a continuation of the decline in the price of the US dollar until the end of May, but rather a period of quiet trading with little sense of direction and low volatility.”
Overall, markets continued to debate BoE rate expectations, watching the rhetoric closely. According to Foreign Monetary Policy Committee member Green, “Given how long we must maintain our restrictive stance before policy is eased, I believe the burden of proof must be that inflation continues to decline.”
The rhetoric overall appeared slightly more pessimistic than previously, although there is unlikely to be a major shift in expectations until the release of key inflation data this week. According to the economic calendar, it is inevitable that headline UK inflation will fall sharply to around 2% or even lower, given the favorable fundamental effects and the impact of lower retail energy prices since the beginning of April. What is likely to be key for the markets and the Bank of England is the fundamental data on inflation in the services sector. Especially, since there will be price increases through the annual index in this release.
For its part, HSBC expects confidence to increase in interest rate cuts in June. The market expects a 60% chance of an interest rate cut at the June meeting. Our economists expect the interest rate to be cut in June, suggesting that there is still some downside for sterling ahead.
US economic developments will also be crucial for European currencies in general and the British pound in particular. According to the recently announced US Initial Jobless Claims fell to 222,000 in the last week from a previously revised 232,000, but slightly above consensus expectations of 219,000 while continuing claims rose to 1.79 million from 1.78 million.
US housing starts rebounded to an annual rate of 1.36 million for April from a previously revised reading of 1.29 million, but this was below expectations of 1.42 million while building permits were also weaker than expected at 1.44 million from a revised reading of 1.49 million for the month. March. Also, according to the advertiser, the Philadelphia Fed manufacturing index fell more than expected to 4.5 for May from 15.5 previously and below expectations of 7.8. Moreover, new orders fell sharply back into contraction while employment and weekly hours worked also fell during the month.
Overall, the price readings were mixed during the month. Meanwhile, there is little change in expectations while inflationary pressures are expected to ease. For its part, HSBC commented; "There have been clear signs of data improvement across Europe, but it is noticeable that upside surprises are only evident in surveys. If we isolate the 'hard' data releases from the eurozone, the latest numbers are still below expectations. The opposite pattern is evident in the US where hard data releases are still coming in above consensus, but there have been some weaker than expected survey numbers."
Ultimately, Nordea does not expect to cut US interest rates until December 2024 due to ongoing inflation pressures.
Top Forex Brokers
Technical forecasts for the GBP/USD pair today:
According to the performance on the daily chart the price of the British pound against the US dollar GBP/USD is moving within a rising channel that was formed recently. As we mentioned before, breaking resistance 1.2775 is important for more control by the bulls. At the same time, expectations will increase for the future of psychological resistance 1.3000. Especially if it moves towards the next most important resistance, 1.2830 and 1.2920 respectively. However, it must be taken into consideration that its recent gains moved some indicators towards strong overbought levels. Unless the sterling gains more momentum, the currency pair may be exposed to profit-taking selling operations, and the results of the British data are relied upon to avoid this or its occurrence.
Ready to trade our daily Forex forecast? Here’s a list of some of the top forex brokers UK to check out.