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British Pound (GBP) Price Outlook: GBP/USD to Break Higher if 1.42 Breached

British Pound (GBP) Price Outlook: GBP/USD to Break Higher if 1.42 Breached

Martin Essex, MSTA, Analyst

GBP price, news and analysis:

  • This month’s rally in GBP/USD will likely persist if and when it breaks resistance at and just above the 1.42 level.
  • Market pricing suggests the Bank of England will increase its key interest rate by June next year and that is helping to boost the British Pound.
  • Moreover, the latest UK public borrowing figures suggest borrowing is beginning to fall back after its previous surge higher.

GBP/USD well placed to extend gains

GBP/USD looks set to continue this month’s advance, but only if it can hurdle psychological resistance at the 1.42 level on a sustained basis. As the chart below shows, it broke above 1.42 briefly on Tuesday last week and then again on Friday, with Friday’s high at 1.4234 the next resistance level above the round number to watch out for.

GBP/USD Price Chart, Two-Hour Timeframe (May 2 – 25, 2021)

British Pound (GBP) Price Outlook: GBP/USD to Break Higher if 1.42 Breached

Source: IG (You can click on it for a larger image)

Behind Sterling’s advance lies speculation that the Bank of England will be sufficiently worried about inflation to increase Bank Rate by a quarter of a percentage point in the middle of next year. Market pricing suggests a quarter-point rise by June 2022 and a further increase in June the year after.

That’s despite BoE Governor Andrew Bailey telling lawmakers Monday that an expected acceleration in prices this year will likely be temporary. Jon Cunliffe, one of his deputies, said inflation will later return to the central bank’s 2% target as growth slows.

UK public sector borrowing falls

In the meantime, the latest data on UK public-sector borrowing, released earlier this session, showed net borrowing in April down to £31.7 billion after a revised fall of £26.3 billion the month before. It is now clear that borrowing is falling after its huge rise since the start of the coronavirus pandemic as the Government increased spending to dampen the negative economic impact of Covid-19.

As for this session, the BoE’s Silvana Tenreyro is scheduled to speak at 1700 local time but that is unlikely to move the markets as she will almost certainly stick to the script prepared by Bailey and Cunliffe.

--- Written by Martin Essex, Analyst

Feel free to contact me on Twitter @MartinSEssex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.