At the end of last week’s trading, the exchange rate was pound to dollar (GBPUSD) it rose to the resistance level of 1.2848, which is the highest value for the currency pair in more than 14 months. At the start of this week’s trading, it settled around the 1.2825 resistance level. The US Federal Reserve abandoned the path of raising US interest, albeit temporarily, allowing bulls to move the currency pair with confidence. The mixed results of recent US economic data failed to convince markets that the Federal Reserve is certain to raise US interest rates in July.
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The pound’s gains against other major currencies are a key date this week as the Bank of England’s policy update is announced. On that note, economists at Bank of America expect the Bank of England to add three more 25 basis point hikes to raise the interest rate to 5.25%. “We also have more clarity on the post-Brexit order, better relations with the EU and a significant reduction in associated risks,” the analysis adds. According to the bank, Bank of America now expects GBP/USD to end 2023 at 1.24 and rise steadily to 1.35 by 2024.
Last week, the Federal Reserve left US interest rates unchanged in response to persistent evidence that US inflation was falling, but signaled it was likely to raise interest rates again. Chris Beauchamp, Chief Market Analyst at IG, says in this regard: “Dollar bulls saw their gains reversed as the dollar reversed its gains last night. The Fed may like to point out that it is not stopping, but the market clearly thinks otherwise.
However, US inflation remains somewhat above the Fed’s target, and the Fed has issued guidance that it believes two more rate hikes would be appropriate before the end of the year.. But markets appear reluctant to internalize that message by selling dollars and buying stocks, suggesting investors think the Fed has ended its cycle.
The US labor market is particularly important in this regard: once unemployment begins to rise, wage pressures begin to ease, ensuring that demand in the economy dies down and inflationary pressures recede. Last week, US jobless claims unexpectedly jumped to 261,000 from 233,000, defying the market that was looking for a rebound to 245,000. The reading above the consensus for this week at 246.75K represents the second negative surprise in a row that has convinced investors that the labor market may be turning around.
Last week, Bank of America raised its outlook for the British pound, saying the British currency would remain supported despite a “gloomy fundamental outlook” for the UK economy. Bank of America is certainly among the list of investment banks that are long the pound and predict chronic underperformance in the economy as the UK economy falters for growth in 2023.. However, the economy beat consensus expectations, leading to a series of data surprises that saw UK bond yields retreat and the pound rise.
- According to the performance on the daily chart below, the bullish trend of the GBP/USD pair is strengthening.
- Bulls may have an opportunity to move towards the 1.3000 psychological resistance level if the bulls settle on prices above the 1.2850 resistance level.
- Sterling’s positive momentum increased ahead of a later rate hike by the Bank of England
This week widens the gap between the US central bank’s policy, which has recently kept the US interested, and the Bank of England, which is introducing a policy of continued tightening. On the other hand, and for the same period, the bears will not check the trend again without returning to the 1.2545 support level again. The currency pair may remain on track today in light of the US holiday and pending a response to Bank of England policy.