Forecast GBP/USD and EUR/GBP:
- A hawkish repricing of interest rate expectations in the UK has boosted British pound in recent weeks
- The outlook for the pound remains constructive in the very near term
- This article looks at the key GBP/USD And EUR/GBPTechnical levels to watch in the coming days and weeks
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In recent weeks, the British Pound has strengthened rapidly against its major peers, supported by a hawkish repricing of the Bank of England’s final interest rate in the face of rampant inflation in the UK. Britain’s CPI, which came in at 8.7% year-on-year in May – the highest level among developed economies, prompted the country’s monetary authority to adopt a more aggressive stance, raising borrowing costs by a surprising 50 basis points to 5.0% at the June meeting.
Continued strong inflationary pressures, combined with signs that the trend is becoming entrenched, are likely to push the BoE above 6.0% in the coming months and into 2024, possibly as high as 6.50% depending on implied market odds. The institution led by Andrew Bailey will also have to maintain a restrained stance for an extended period to prevent second-round effects on prices from spilling over through the economy.
Meanwhile, the Federal Reserve and European Central Bank will soon conclude their tightening campaign, as inflation is expected to decline relatively faster in the US and the Eurozone than in the UK. This divergence in monetary policy may favor the pound (GBP) in the short term, but could turn into a headwind if the British economy takes a turn for the worse and enters recession, slumping under the weight of several years of high interest rates.
Related: Trading the GBP/USD – Overview of the GBP/USD forex pair
|
change in |
Longs |
Shorts |
Hey |
| Daily | 3% | 8% | 6% |
| weekly | -21% | 20% | 2% |
Technical analysis of the GBP/USD pair
After the recent rally, the GBP/USD pair is steadily approaching the upper border of the rising wedge at 1.2975. With the market stretching and the RSI flirting with overbought conditions, the pound might struggle to get rid of this resistance, but in case of a break, it could gain bullish momentum to head towards 1.3150 and 1.3290 after that.
On the other hand, if sellers regain control and launch a bearish reversal from current levels, initial support appears at 1.2840, followed by 1.2675. With more weakness, we could see a pullback towards 1.2600, just a touch above the 50-day simple moving average and the lower bound of the rising wedge.
Technical chart of the GBP/USD pair
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|
change in |
Longs |
Shorts |
Hey |
| Daily | 6% | -14% | 0% |
| weekly | 1% | -6% | -1% |
Technical analysis of the EUR/GBP pair
After the sell-off on Tuesday, the EUR/GBP fell towards an important floor area around the psychological level of 0.8500. If the bulls can’t hold back the current attack on technical support and prices collapse below this area, sellers may become bolder to attack 0.8435, followed by 0.8340.
On the other hand, if the EUR/GBP pair regains its balance and manages to rebound from the current levels, the first resistance to watch is located just below the 0.8600 handle. The upside clearing of this ceiling might attract new buyers to the market, creating the right conditions for a rise towards 0.8650.