GBP/USD Stumbles, EUR/GBP Tests Support, BoE on Tap

GBP/USD and EUR/GBP – rates, charts, and analysis

• The Bank of England (BoE) is expected to raise interest rates by 25 basis points.
• Cable slides after US Non-Farm reports but from a high.
• EUR/GBP test range support.

The Bank of England is expected to raise interest rates by another 25 basis points next Thursday as part of continued efforts to combat very strong UK inflation. UK headline inflation (10.1%) has remained in double-digit territory for the seventh consecutive month, while UK inflation of 6.2% is just 0.3% off multi-decade highs of 6.5% in September and October last year. For all the talk that UK inflation will decline rapidly as we head into the second half of the year, there is nothing, so far, that it can be positive about.

UK headline inflation

As always, what Governor Bailey says in his post-decision statement and press conference will be key going forward for Sterling. If the BoE remains confident that inflation will drop sharply, the central bank may hint that future rate hikes are yet to materialize and will remain dependent on the data.

GBP/USD It is giving back a small part of its recent rally which saw the pair post a multi-month high of 1.2634 today. The pair may try to regain this mark early next week before the Bank of England, where initial resistance was seen at 1.2667 before 1.2742.

GBP/USD daily price chart – May 5, 2023

Chart via TradingView

GBP/American dollar Retail sentiment is mixed

Retail trader data shows that 34.24% of traders are net long with the short-to-long ratio of 1.92 to 1, the number of long-term traders is 3.58% higher than yesterday and 12.29% lower than last week, while the number of traders is Traders’ net short positions are down 0.21% from yesterday, and 18.32% 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 may continue to rise. Positioning is net less than yesterday but more net than last week. The combination of current sentiment and recent changes gives us more of a mixed bias in GBP/USD trading.

euro/GBP It sits at the previous horizontal level which has remained flat this year. The pair is also testing the 200-day moving average for the first time since late August last year. Below is a bit of recent technical support until another area of ​​previous support appears around 0.8570.

EUR/GBP daily price chart – May 5, 2023

Chart via TradingView

Retail trader data shows that 63.17% of traders are net long with the ratio of long to short traders at 1.71 to 1. A contrarian trading bias is stronger than EUR/GBP.

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