Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.2650.
- Add a stop-loss at 1.2520.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.2580 and a take-profit at 1.2500.
- Add a stop-loss at 1.2650.
The British pound has staged a strong comeback against the greenback after a series of strong UK economic numbers. The GBP/USD pair has risen for four straight days and is now hovering at its highest swing since May 3rd. It was trading at 1.2590, higher than last month’s low of 1.2298.
UK economy is doing well
There are signs that the British economy is doing better than expected. A report published by the Office of National Statistics (ONS) revealed that the economy moved from a technical recession in the first quarter as it expanded by 0.6% after dropping by 0.3% and 0.1% in Q4 and Q3, respectively.
Another report on Tuesday showed that the labor market was still tight as the unemployment rate rose slightly to 4.3%. The average earnings figure rose to 8.9% in March, higher than the expected 5.3%. Excluding bonuses, wages rose by 6.0%, which is a strong figure.
The UK is also seeing weaker inflation figures, with analysts at ING estimating that the headline CPI figure will drop to 1.5% by May. This trend is happening as energy prices in the country continue retreating.
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Therefore, the consensus view is that the Bank of England will start cutting rates in June. It will then deliver one or two more cuts later this year.
The Fed, on the other hand, is sending mixed signals as the US remains in a reflation phase. Recent data showed that inflation has constantly remained above the 2% target rate. Economists expect the headline inflation figure to come in at 3.4%.
The US is in a period of stagflation, where sluggish economic growth is accompanied by a high inflation rate. It is often difficult to deal with stagflation since cutting rates often leads to high inflation while hiking affects economic growth.
GBP/USD technical analysis
The GBP/USD pair continued rising amid rising hopes of a Fed and Bank of England divergence on monetary policy. It has crossed the important resistance point at 1.2520, its lowest swing on February 5th.
The pair has also flipped the 50-day moving average and the Woodie pivot point, meaning that bulls are in control for now. Oscillators like the Relative Strength Index (RSI) and the Stochastics have also pointed upwards.
Therefore, the pair will likely show volatility after the US CPI data. The key levels to watch will be at 1.2650 and 1.2500.
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