GBP/USD, EUR/GBP and GBP/JPY Outlooks

GBP/USD rates, charts and analysis

• Very little local economic data or events next to the GBP.
• GBP/USD clients converted a net sell.

The British Pound had a strong week, posting multi-week gains against a host of other currencies. The British Pound is up over a large double digit against the US dollar for the week, over a large single digit against the Euro, and about a single and a half figure against the Japanese Yen. The recent UK inflation report, which showed price pressures easing but at a slow rate, has heightened expectations that the Bank of England will continue to raise interest rates in the short term to help bring inflation back on target. Against this, the current market thinking is that the Federal Reserve will likely pause its latest program to raise interest rates this month and that the European Central Bank may moderate the program after recent Eurozone data showed that inflation is decelerating at a better-than-expected pace. In Japan, the governor of the New Bank of Japan recently said that monetary policy conditions will remain loose until inflation meets the central bank’s target on a sustainable basis.

The economic calendar next week is light from any local economic data or events that move the market, while the global calendar is also relatively thin from high impact events.

See all market-moving events and data releases in real time DailyFX calendar

Sterling is back above 1.2500 after flirting briefly with 1.2300 last weekend and the technical setup looks positive. While this week’s rally pushed the pair into overbought territory, the GBP/USD is currently above all three simple moving averages for the first time since mid-May. An overbought signal could slow any move up, but a rebound through 1.2547 could see cables test the May high for several months in the coming weeks.

GBP/USD daily price chart – Jun 2, 2023

The move lower in the EUR/GBP is more noticeable than the GBP as the recent sell-off showed an uninterrupted series of red candles. The pair is trading below the 3 simple moving averages with the 20 and 50 day crossing below the 200 dma, the longest in history. Support may start working soon at 0.8549.

EUR/GBP daily price chart – June 2, 2023

The GBP/JPY pair has been on a somewhat sustained uptrend since late March and is trading today at its highest level since February 2016. With the Bank of Japan continuing to maintain loose monetary policy, more gains could be seen in the pair in the coming weeks. The chart is positive with 175 and 177 attainable levels. Be careful with comments from the Bank of Japan as they have a track record of verbally intervening when the JPY weakens excessively.

GBP/JPY daily price chart – June 2, 2023

All charts via TradingView

Retail traders on the GBP/USD are now net yellow

Retail trader data shows that 41.24% of traders are net long with the short-to-long ratio at 1.42 to 1, while the number of long-term traders is down 15.91% from yesterday and 27.59% lower than last week, while the number of long-term traders is up. Traders’ net short positions increased by 23.13% compared to yesterday, and 41.47% higher than last week.

We usually take a view contrarian to crowd sentiment, and the fact that traders are short on the bargain suggests that GBP/USD prices could continue to rise. Traders are more net-handed than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger bullish contrarian trading bias between GBP/USD.

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