- The GBP/USD exchange rate has fallen below the psychological support level of 1.2500, extending losses to the 1.2467 support level before settling around 1.2495 at the time of writing, ahead of the key event for the pair, the Bank of England's announcement.
- It is unlikely that the Bank of England will cut interest rates at this meeting, but there is speculation that there will be a signal that rates will be cut in June.
Meanwhile, it is possible that a less pessimistic attitude will lead to recovery after the decision.
According to Credit Agricole: “The British pound price faced some selling interest last week, mostly driven by algorithmic trading flows based on forex technical signals. Our FX flow data refers to inflows from companies and real money investors, as well as outflows from banks and hedge funds. Added, “In general, the price of the pound sterling remains in the oversold zone.”
On another level, in comments on Tuesday, Minneapolis Federal Reserve Bank President Kashkari said it was too early to consider progress in lowering inflation to have stalled. Regarding the possibility of raising the US interest rate. He commented, “This is not the most likely scenario for me, but I also cannot rule it out,”. added, “I think the bar we have to raise is very high, but it is not limitless.” There is a limit when we say: OK.” Ultimately, “We need to make more efforts.”
There has been little change in pricing for rate cuts, with a 30% chance of a cut in July. ING commented: "For once, the dollar - has not been too affected by domestic drivers and may face further consolidation in the coming days. Furthermore, there is some additional upside risk for the DXY as the yen remains under pressure and this morning's Swedish rate cut could weigh on demand for European currencies." According to HSBC: "With the FOMC drama and non-farm payrolls out of the way, the FX market is struggling for direction." He added, "Ultimately, the debate will be resolved by data, and really only inflation data. The next release of US CPI is on May 15."
Clearly, the underlying US debate will remain a key market driver.
Danske Bank sees the evidence on inflation as generally more positive, especially as evidence suggests the labor market is slowing. According to Danske Bank: "The downside surprise in US non-farm payrolls growth was consistent with the weakness in April's leading comprehensive indicators. The decline in JOLT job openings, hiring below pre-pandemic levels and slowing average hourly earnings growth all suggest that labor cost pressures are unlikely to lead to further acceleration in inflation. However, the bank has changed its view on US rate cuts. "However, it is now time to review the Fed's call-in light of last month's data."
Danske Bank now expects interest rates to be cut in September and December, although it still considers risks biased towards an early move. Domestic data drives overall will remain remarkably limited in the near term, but Fed officials' rhetoric will remain closely watched.
The market narrative would change if there was compelling evidence that the US economy was deteriorating. JP Morgan commented, "Our bullish USD view has rested on two key catalysts: carry and the US exceptionalism. The first remains intact, but the latter seems to be losing some of its shine. Alongside crowded positioning and valuations, it is prudent to tactically trim USD longs. However, it added: "But we caution that it is still too early for USD bears to declare victory given the persistence of US inflation, the uncertainty surrounding the strength of the non-US recovery and the upcoming US elections."
Currently, the pound is the weakest G7 currency in May so far.
Technical forecasts for the GBP/USD pair today:
According to the performance on the daily chart below, the bulls failed to break the general downward trend for the price of the British pound against the US dollar GBP/USD. As mentioned before, stability will remain around and below the psychological support level of 1.2500, which will support the downward movement for a period of time, and if pessimism increases in the Bank of England’s policy after the announcement Today, the bears may find the opportunity to move the currency pair towards the support levels of 1.2430, then the psychological support of 1.2300, respectively. From the last level, the technical indicators will move towards strong selling saturation levels. On the other hand, over the same time period, and as I mentioned before, the resistance 1.2775 will remain the most important to bring about a change in the current bearish direction of the currency pair.
Ready to trade our daily Forex forecast? Here’s a list of some of the top forex brokers UK to check out.