- The GBP/USD exchange rate is trading near a 3-week high ahead of major economic and political developments on both sides of the Atlantic.
- After the weekend, there will be a new government in the UK and the potential emergence of a new Democratic presidential candidate in the US, which will lead to a major shift in political dynamics.
- The GBP/USD price gains reached the 1.2817 resistance level, its highest point in three weeks.
According to Forex market analysts, while the risk has shifted to the upside, it is worth noting that there is a strong resistance level at 1.2805, ahead of last month’s high of 1.2860. To maintain the momentum, the pound must not break below 1.2665.
Regarding the UK elections, there are very strong expectations of a Labor victory. Anything but a large majority would be the biggest shock in recent times. In this regard, MUFG Bank commented: "The Labor Party's pledge to prioritize economic stability and respect fiscal rules is mitigating concerns about the risks of more flexible fiscal policy and a loss of confidence in GBP/USD. On the other hand, investors would welcome greater political stability in the UK and the possibility of an improved Brexit deal that could support GBP/USD."
According to forex trading, the US dollar was generally affected by its strength in global markets after weaker-than-expected US data with ISM business confidence data after a contraction in the manufacturing sector. In this regard, ING Bank commented, “This is an important story because these have historically been the best leading indicators of changes in the economic cycle and suggest that downside risks to growth are increasing.” The bank added, “This certainly strengthens the case for a US interest rate cut in September by the Federal Reserve as it ticks all the boxes of weak growth, slowing inflation and a deteriorating job market.”
Rodrigo Catril, Head of FX Strategy at National Australia Bank, commented: "Slowly but surely, what we're starting to see is a slight shift in the flow of US economic data." According to MUFG Bank: "Overall, the developments give us more confidence that inflation and growth in the US will continue to slow, encouraging the US interest rate market to price in more rate cuts from the Fed next year. Obviously, this is a key assumption behind our forecast for US dollar weakness next year."
US yields have fallen for economic reasons, but markets are also watching political developments. For its part, US President Biden has continued to insist that he will remain the Democratic nominee in November but talk of his withdrawal has continued to grow amid speculation that there will be an announcement over the weekend. Accordingly, Rabobank expects the uncertainty to help support the US dollar. He stated, "In light of the upcoming US elections and the uncertainty surrounding Fed policy, the summer is shaping up to be far from quiet for markets. Regardless of the short-term noise, we still see the US dollar as likely to retain its strong position next year, with the possibility of a Trump presidency supporting these expectations."
Top Forex Brokers
Technical forecasts for the GBP/USD pair today:
A bullish channel has formed for the GBP/USD price on the daily chart attached, and bulls will control the trend if the currency pair moves towards the psychological resistance level of 1.3000, which in turn will move the technical indicators towards strong overbought levels. On the other hand, in the same time frame, the support level of 1.2700 will remain a threat to the current upward path. Thus, the currency pair will react this week to the announcement of US inflation figures and the testimony of the US Federal Reserve Governor Jerome Powell.
Ready to trade our daily Forex analysis? Here are the best regulated trading platforms UK to choose from.