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British Pound (GBP) Outlook: GBP/USD Looking to Set Up a New Trading Range

British Pound (GBP) Outlook: GBP/USD Looking to Set Up a New Trading Range

Nick Cawley, Strategist

GBP/USD Price, Chart, and Analysis

  • BoE hikes rates and will do so for the foreseeable future.
  • UK PM Johnson is back in the spotlight.

Keep up to date with all market-moving data releases and events by using the DailyFX Calendar

The British Pound remains reasonably well-bid after the Bank of England hiked interest rates by 25 basis points and revealed that 4 out of the nine voting members argued for a 50 basis point increase. An updated inflation outlook, with price pressures seen hitting 7%+ in Spring before subsiding, kept the hawkish theme alive and underpinned market expectations of around another 120 basis points of rate hikes this year with the Base Rate expected to hit 1% by May.

Hawkish Bank of England (BoE) Hikes Rates by 0.25%, Sterling Jumps

While the monetary policy background is becoming clearer by the day, the political background, notably how long UK PM Boris Johnson can hold on to the keys of No.10 Downing Street, continues to get murkier. On Thursday, four senior members of PM Johnson’s staff left their posts – trimming the wage bill in the short-term at least – with all of them saying that they had resigned due to various conflicts with the PM. Three of the four however were embroiled in the partygate scandal and some sources suggest that they may have decided to jump before being pushed. Either way, losing senior members of staff is not a good situation for the Prime Minister who remains under pressure not only over the partygate scandal but also over ill-advised comments made to the Leader of the Opposition in the House. Added to this the ongoing trickle of MPs who are submitting votes of no confidence in the PM to the 1922 Committee and the Prime Minister’s outlook is looking increasingly bleak.

Sterling will probably look through any change in leadership after a short-term bout of volatility with the BoE’s readiness and commitment to tackle inflation the likely driver of Sterling forward. GBP/USD is just off Thursday’s multi-day highs and may look to establish a range against the greenback. The US dollar has also given back some of its recent gains as other central banks ramp up their monetary tightening. The ECB yesterday suggested that its APP program may end sooner rather than later, leaving the door open for rate hikes later in the year.

The first level of resistance for GBP/USD lies at 1.3749 and this may take some time to break convincingly. Support is seen at 1.3515 ahead of 1.3412, with the latter level likely to hold firm in the short term. It may be that GBP/USD range trades for the foreseeable future.

GBP/USD Daily Price Chart – February 4, 2022

British Pound (GBP) Outlook: GBP/USD Looking to Set Up a New Trading Range

Retail trader data show 51.38% of traders are net-long with the ratio of traders long to short at 1.06 to 1. The number of traders net-long is 5.76% higher than yesterday and 9.88% lower from last week, while the number of traders net-short is 5.93% lower than yesterday and 21.78% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall. Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/USD trading bias.

What is your view on GBP/USD – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

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

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