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GBPUSD Gains Again, BoE Bailey Says Inflation Fight Comes First

GBPUSD Gains Again, BoE Bailey Says Inflation Fight Comes First

David Cottle, Analyst


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GBP/USD Prices, Charts, and Analysis

  • GBP/USD made further gains Tuesday
  • The US Dollar saw some broad weakness as banking-crisis fears eased
  • UK rates still look set to gain, but maybe not by much more
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GBPUSD has continued to rise in Tuesday’s European session, thanks to both general United States Dollar weakness and some supportive domestic news out of its home economy.

The Greenback has seen some widespread pressure this week as recent fears of another banking crisis have ameliorated. Despite the well-publicized troubles of some medium-sized lenders in the US in the face of higher interest rates, and the takeover of troubled giant Credit Suisse by long-time rival UBS, the market seems more certain that changes made to bank balance sheets since the dark days of 2008 mean we aren’t headed to Financial Crisis 2.0.

This in turn has given impetus to riskier or more global-growth-linked assets, at the expense of perceived havens such as the Dollar.

The Pound has also benefited from comments made by Bank of England Governor Andrew Bailey. He said that the central bank will continue to focus on the fight against inflation (a battle more considerable in the United Kingdom than elsewhere), because the domestic banking sector is resilient and doesn’t need special monetary consideration.

He also said that, in his view, local interest rates won’t have to rise to the highs seen before the last financial crisis, his latest hint that the UK may be close to the end of the fastest series of increases in thirty years. The market has a long wait to see what comes next, however, as the next scheduled Monetary Policy Committee meeting in London isn’t until early May.

GBP/USD has gained quite consistently since the second week of March, climbing on both the market view of interest rate differentials and as it appeared that the UK economy wasn’t in quite as much trouble as seemed likely as last year ended. Still, the pair is approaching heights that have capped it previously, and gains from here may be hard-won.

The rest of the session doesn’t offer a huge number of likely tradable data points, but, of what there is, US consumer confidence numbers probably top the bill. They’re coming up at 1400 GMT.

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GBPUSD Technical Analysis

Chart Compiled Using TradingView

The Pound is now well within a broad trading band, the upside of which has proven remarkably resilient. That now comes in at 1.24592, still well above the current market.

That level has curbed the bulls’ enthusiasm on numerous occasions since December last year and seems very likely to continue to do so if tested. However, before that can happen, the pair will need to consolidate its position above the psychological 1.21 handle. At the moment that looks likely, but a look at the last seven days’ trading reveals some comparatively narrow daily ranges around that point, suggesting that the market is far from certain it can hold up here. Whether it can into a weekly and monthly close could prove most instructive.

Reversals are likely to find support in the 1.2172 region ahead of March 8ths five-month low of 1.18032.

IG’s own sentiment data finds the market quite bearish on GBP/USD at current levels, with 59% of traders now short. Sterling is one of those currencies which generally finds sellers on prolonged bouts of strength, and for that reason a pullback may be likely now. It could well be merely corrective in nature, however, provided it is only mild.

--By David Cottle For DailyFX

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