British Pound Forecast: Bullish
- GBP/USD has been steadier than the UK data alone might suggest
- The market still thinks rate cuts are coming, but there’s no sign they’re coming soon
- That thesis should support Sterling in a data-light week
There are few signs in the last week’s trading that the British Pound’s home economy has been on something of a roller-coaster ride in terms of what the data are telling us.
It’s only about a week ago that official growth figures unexpectedly showed that the United Kingdom entered a technical recession in the final three months of 2023. And already there seems a good chance that it’s going to be an extremely mild recession by historical standards. Indeed, it might already be over.
Bank of England Governor Andrew Bailey suggested as much in his testimony before Parliament on February 20, and the most recent of the closely-watched purchasing Managers Index series found private-sector optimism at a two-year high.
So, the Bank of England has a fine balancing act to pull off this year, to nurture recovery while snuffing out stubborn inflation at the same time. Sterling markets still think on balance that its next move on interest rate will be a reduction from the current, sixteen-year peaks. However, that might not come for some time, Bailey declared himself ‘comfortable’ with the markets’ view on rate cuts, but when they arrive, and how deep they’ll be, remain open questions.
That’s the domestic backdrop Sterling is likely to be left with as a new week gets underway.
There’s very little on the local data slate likely to move the Pound this week, and the Bank of England won’t set rates again until late March.
This is likely to leave GBP/USD very much at the mercy of what happens on the USD side of things, and there is more scope for movement there. First-tier US numbers on tap in the coming days include durable goods orders, a second official look at Gross Domestic Product for the end of last year and, perhaps most crucially, the latest inflation roundup from the Personal Consumption and Expenditure series.
The core inflation rate here was an annualized 2.9% last time. The market is looking for gradual reductions which would, presumably, keep the prospect of lower US rates very much alive. On the assumption that this week’s US figures won’t hit this theory too hard, it’s a bullish call for the Pound this week.
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GBPUSD Technical Analysis
GBP/USD Daily Chart Compiled Using TradingView
GBP/USD has been confined to a broad trading range since November, bounded to the downside by retracement support at 1.24593 and the top by December 28’s peak of 1.28629. Within that band, the range has narrowed considerably since early February and, while the former range base remains in place, the current top comes in at 1.26938 which now acts as near-term resistance.
Notably, the longer-term uptrend from mid-September 2022 is now coming back into view for this market. It’s currently some way below at 1.24532 but Sterling’s range trade if unbroken will bring it into play this week. It will be interesting to see what occurs should the Pound fall below this line.
Second retracement support doesn’t come in until 1.20857. That looks safe enough even if the current range breaks down, but the uncommitted may want to wait and see if that downtrend does break.
--By David Cottle for DailyFX
