- Weak sentiment has kept GBP/USD from gaining ground since the start of this week's trading, with its gains not exceeding the 1.2702 resistance level.
- This was before retreating back to settle around the 1.2668 support level at the time of writing.
- Moreover, it may remain in its current trading range pending the reaction to the US inflation reading, the Fed's favorite, at the end of the week.
On the other hand, expectations are stronger that the Bank of England (BoE) will cut interest rates in August. Recently, the pound could drift lower if the market increases confidence in a rate cut in August. The UK calendar will be relatively light this week, while the BoE will be muted ahead of the general election on July 4.
Clearly, the shift in interest rate expectations in the UK and the Eurozone will remain important for the pound.
In this regard, according to the forex market, MUFG commented; “The minutes of the latest MPC meeting suggest that policymakers may be ready to cut interest rates as soon as the next policy meeting is held in August. Inflation sentiment remained clearly negative as policymakers indicated caution about flat services inflation. Meanwhile, labor market sentiment deteriorated to levels not seen since May 2023, as policymakers highlighted risks to the slack labor market. According to Nordea Bank, all major central banks may struggle to cut interest rates; “The problem is that global central banks are very likely to be cautious about cutting interest rates when unemployment is historically low, wage growth remains at a multi-decade high, and inflation remains above the 2% target for most central banks.” In contrast, the US dollar faced headwinds on Monday amid a lack of macroeconomic releases in the United States. Elsewhere, a wave of risk-off trading coupled with a slight decline in US Treasury yields dampened investor interest in the US dollar as a safe haven, leaving the greenback as a less favourable investment option throughout most of Monday’s session.
In addition, growing expectations that the Federal Reserve could start cutting US interest rates as soon as September 2024 continued to weigh on the US dollar. While Fed policymakers have maintained a hawkish consensus in recent weeks, the CME FedWatch tool now shows a roughly 60% chance that the central bank will start easing monetary policy in the third quarter of 2024, with an increasing number of economists now leaning towards this narrative. “We expect the US Fed to start cutting rates by September 2024, in line with consensus expectations,” said Sujan Hajra, chief economist and managing director of Anand Rathi Equities and Securities Brokers.
According to reliable trading platforms, the pound traded in a wide range against major currencies at the start of the week, while it rose against the US dollar amid changing market sentiment. With few high-impact releases in the UK at the start of the week, the focus was on the latest industry trends from the Confederation of British Industry (CBI). Also, the survey showed that the total order book balance in June rose to -18, beating expectations of -25 and up from -33 in May. The survey reached a three-month high this month, giving the pound some modest support, but despite the production forecast reaching its highest level since October 2023, export orders fell to their lowest level since February 2021.
For his part, Ben Jones, chief economist at the CBI, said, “It is encouraging to see that manufacturers remain confident that the economy is heading in the right direction, and our June survey suggests that the recovery should broaden over the summer.” One cautionary note is that order books remain weak, the sharp deterioration in export order books is particularly striking and something to watch in the coming months.
Elsewhere, the Bank of England’s hold on interest rates last week has further hampered sterling against most of its peers, with expectations of a rate cut in August still strong. However, increased risk appetite appears to be mitigating the downside for sterling as the session progresses, given its increasingly risk-sensitive status. This has helped sterling strengthen against its safe-haven rivals.
Looking ahead, a number of Fed policymakers are scheduled to speak throughout the week, starting with Mary Daly on Monday evening. If any of the policymakers take a hawkish stance, the "dollar" could gain some investor support amid signs that the Fed's hawkish consensus remains intact, despite growing market expectations.
Looking ahead to the UK, the lack of notable releases in the coming days could see sterling trading primarily in line with global risk dynamics. If the increased risk appetite continues, the pound could strengthen against its rivals. However, the gloomy trade could leave the pound rudderless against its safe-haven rivals.
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Technical forecasts for the GBP/USD pair today:
Based on the performance on the daily chart attached, the GBP/USD price is in a downward correction path and breaking the support at 1.2600 will strengthen the bears’ control. It will then prepare technically for stronger bearish breakouts. Especially, if the factors of the US dollar's gains continue and the technical indicators will not move towards strong oversold levels without moving towards the support level of 1.2480. On the other hand, the GBP/USD pair will not return to their upward channel path without moving towards the resistance levels of 1.2775 and 1.2830 again.
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