|premium|

GBP/USD Forecast: Pound a long way from a rebound on BOE's recession warning

  • GBP/USD has slumped below 1.2300 for the first time in nearly two years.
  • Safe-haven flows dominate financial markets ahead of the weekend.
  • US Bureau of Labor Statistics will release the April jobs report later in the day.

GBP/USD has recovered modestly after having slumped to its weakest level in nearly two years below 1.2300 early Friday. The pair, however, is unlikely to stage a steady rebound in the near term after the Bank of England's dire recession warning on Thursday.

Following its decision to hike the policy rate by 25 basis points (bps) to 1%, the BOE noted that the UK economy could go into recession in 2022 with inflation rising above 10% amid surging energy prices. The bank also refrained from providing any details on the quantitative tightening plan, saying that they would unveil a plan at the August meeting. 

BOE Quick Analysis: The R-word bursts out, and the pound plunge is far from over.

The BOE's gloomy outlook suggests that the policy divergence between the Fed, which is on track to hike its policy rate by 50 bps in the next couple of policy meetings, is likely to widen. Hence, the fundamental outlook is likely to continue to favour the dollar over the pound, limiting the GBP/USD's gains to technical corrections.

Later in the session, the US Bureau of Labor Statistics will release the April jobs report. The headline Nonfarm Payrolls (NFP) is expected to come in at 391,000, following March's print of 431,000. Investors will pay close attention to the wage inflation data, as measured by the Average Hourly Earnings, as well. Unless these data cause the market mood to improve, the dollar is likely to preserve its strength ahead of the weekend. Meanwhile, US stock index futures are down between 0.2% and 0.5%.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the four-hour chart stays near 40, confirming the view that sellers remain in control of the pair's action. On the upside, 1.2400 (psychological level) aligns as the next resistance before 1.2430 (static level, former support) and 1.2460 (20-period SMA).

In case safe-haven flows start dominating the markets in the second half of the day, the pair could test 1.2300 (psychological level) and extend its slide toward 1.2275 (daily low) and 1.2250 (static level coming from June 2020).

Premium

You have reached your limit of 3 free articles for this month.

Start your subscription and get access to all our original articles.

Subscribe to PremiumSign In

Author

Eren Sengezer

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

More from Eren Sengezer
Share:

Editor's Picks

EUR/USD flirts with daily highs, retargets 1.1900

EUR/USD regains upside traction, returning to the 1.1880 zone and refocusing its attention to the key 1.1900 barrier. The pair’s slight gains comes against the backdrop of a humble decline in the US Dollar as investors continue to assess the latest US CPI readings and the potential Fed’s rate path.

GBP/USD remains well bid around 1.3650

GBP/USD maintains its upside momentum in place, hovering around daily highs near 1.3650 and setting aside part of the recent three-day drop. Cable’s improved sentiment comes on the back of the Greenback’s  irresolute price action, while recent hawkish comments from the BoE’s Pill also collaborate with the uptick.

Gold holds above $5,000 as bears seem hesitant amid Fed rate cut bets

Gold edges lower at the start of a new week, though it defends the $5,000 psychological mark through the Asian session. The underlying bullish sentiment is seen acting as a headwind for the bullion. However, bets for more rate cuts by the Fed, bolstered by Friday's softer US CPI, keep the US Dollar bulls on the defensive and continue to support the non-yielding yellow metal as the focus now shifts to FOMC Minutes on Wednesday.

Week ahead: Data blitz, Fed Minutes and RBNZ decision in the spotlight

The US jobs report for January, which was delayed slightly, didn’t do the dovish Fed bets any favours, as expectations of a soft print did not materialize, confounding the raft of weak job indicators seen in the prior week.

Global inflation watch: Signs of cooling services inflation

Realized inflation landed close to expectations in January, as negative base effects weighed on the annual rates. Remaining sticky inflation is largely explained by services, while tariff-driven goods inflation remains limited even in the US.

Ripple Price Forecast: XRP potential bottom could be in sight

Ripple edges up above the intraday low of $1.35 at the time of writing on Friday amid mixed price actions across the crypto market. The remittance token failed to hold support at $1.40 the previous day, reflecting risk-off sentiment amid a decline in retail and institutional sentiment.