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British Pound (GBP) Forecast: GBP/USD and EUR/GBP as the BoE Looms Large

British Pound (GBP) Forecast: GBP/USD and EUR/GBP as the BoE Looms Large

Nick Cawley, Senior Strategist


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GBP/USD and EUR/GBP Prices, Charts, and Analysis

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The Bank of England (BoE) will reveal its latest monetary policy decision next Thursday with the market looking for the Old Lady of Threadneedle Street to lift its Bank Rate to 5.25% from a current level of 5%. While there is a chance of a 50 basis point hike, the recent better-than-expected fall in UK inflation has given the BoE some room to maneuver, and more time to see the cumulative effects of the 500 basis points of rate hikes that have already been delivered.

Euro Stumbles Against a Resurgent US Dollar and Japanese Yen – EUR/USD and EUR/JPY Latest

The Federal Reserve (+25bps), the European Central Bank (+25bps), and the Bank of Japan (unch) all announced their latest policy decisions this week with varying effects – see story above. On balance, the market saw the US dollar and the Japanese Yen pick up a bid while the Euro slipped lower. Most of the movement in GBP/USD and EUR/GBP was not from the British Pound but from the other side of the pair. This may change next week depending on the BoE’s decision and subsequent commentary.

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Cable currently changes hands around 1.2860 after having hit a mid-July peak of 1.3143. Support for the pair nears around 1.2742 and 1.2667 and this last level should hold unless the BoE takes an unexpected dovish turn next week. A break above the 20-day simple moving average at 1.2888, also today’s high print, would leave 1.3000 as the next target.

GBP/USD Daily Price Chart – July 28, 2023

GBP/USD Bearish
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 5% -9% 1%
Weekly -1% -11% -4%
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Retail Traders Ramp Up Net-Longs Positions Over the Week

Retail trader data show 54.84% of traders are net-long with the ratio of traders long to short at 1.21 to 1.The number of traders net-long is 8.38% higher than yesterday and 17.02% higher from last week, while the number of traders net-short is 17.41% lower than yesterday and 20.33% lower 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. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBP/USD-bearish contrarian trading bias.

Sterling has had a better week against the Euro with the pair falling back to an old area of support around 0.8550 before nudging higher. The 20- and 5-day moving averages are now in play at 0.8580 and 0.8594 ahead of 0.8600. Support at 0.8550, then 0.8519 and 0.8504. It looks likely that EUR/GBP will range trade in the foreseeable future.

EUR/GBP Daily Price Chart – July 28, 2023

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What is your view on the British Pound – 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.