GBP/USD, British Pound – Fundamental and Technical Outlook:
- GBP/USD It looks overbought from a multi-month perspective, just as it is testing vital resistance.
- GBP/American dollarRising prices are showing signs of fatigue even in the UK economic inflation Last month fell less than expected.
- Any path for GBP/USD in the near term?
Recommended by Manish Grady
How to trade GBP/USD
The British pound rally against the US dollar has stalled recently, and chances are that the consolidation will last for a while longer before it embarks on a new rally.
This is because although UK inflation earlier in the week showed that price pressures remain stubbornly high, the near-term monetary policy dynamics for the GBP and the US dollar are broadly similar, and the GBP is overbought from Multi-month perspective, there are signs of burnout. Technical charts. For further discussion, see “GBP Rate Setup: GBP/USD Rally on Minor Pause?” , posted on April 17.
GBP/USD change for 6 months
Graph drawn by Manish Grady using Excel. Data source: Bloomberg
UK core inflation failed to decline as expected last month, holding at 6.2% y/y, beating estimates of 6.0%, while UK wage growth surprised higher in February. Headline inflation rose faster than expected at 10.1% y/y in February versus 9.8% expected, not far from a four-decade high of 11.1% in October. Investors are now fully pricing in a 25 basis point rate hike to 4.25% on May 11 and expect rates to peak at 5% by September.
GBP/USD weekly chart
Chart by Manish Gradi using TradingView
Meanwhile, the market is pricing in about a 90% chance of a quarter-point rate hike by the US Federal Reserve at its May 2-3 meeting before stalling. However, Fed officials continue to sound a hawkish tone — Cleveland Fed President Loretta Mester said Thursday that the Fed still has more rate hikes ahead of it — suggesting that the Fed’s rate cut is a bit later. This year is high while inflation remains above the US central bank’s target of 2%.
Daily chart of the British pound / US dollar
Chart by Manish Gradi using TradingView
The pace of GBP/USD’s gains in recent months has been quite sharp – the six-month change is the highest at least since 2014. While the pickup in momentum bodes well for the medium-term outlook, chances are on The near term is that the gains could slow or even reverse slightly, given the mean return nature of the series (see chart).
Daily chart of the British pound / US dollar
Chart by Manish Gradi using TradingView
Note: In the above color-coded chart, the blue candlesticks represent a bullish stage. Red candles represent a bearish phase. Gray candlesticks act as consolidation phases (during a bullish or bearish phase), but they sometimes tend to form at the end of a trend. Note: Candle colors are not predictive – they only indicate the current trend. In fact, the color of the candle can change in the next bar. False patterns can occur around the 200-period moving average, around support/resistance and/or in a sideways/volatile market. The author does not guarantee the accuracy of the information. Past performance is not indicative of future performance. Users of the information do so at their own risk.
On the technical charts, the broader trend is bullish. Color-coded candlestick charts based on trend/momentum indicators are showing that the GBP/USD is still in a bullish phase on the daily charts. However, GBP/USD has been struggling to break above the upper end of the sideways channel since the end of 2022 at around 1.2450.
GBP/USD 240 minute chart
Chart by Manish Gradi using TradingView
Recently, negative divergence (a price rally associated with a momentum decline) on the daily charts indicates that the GBP/USD rally is losing steam. The pair could consolidate sideways or decline slightly in the near term. On the 4 hours chart, immediate support is found at the April 10th low at 1.2345. Any break below that will lead to a minor double top (this month’s high), and open the way towards 1.2200.
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– Posted by Manish Grady, Strategist for DailyFX.com
Connect with Jaradi and follow her on Twitter: @JaradiManish