- GBP/USD bulls remained on a roll for the fifth week in a row.
- Encouraging UK data, dovish Federal Reserve bets supported Cable.
- The 1.2450 level remains a tough nut to crack ahead of the key United States data.
GBP/USD recorded solid gains in the second straight week of 2023, in the face of the continued United States Dollar (USD) downtrend and encouraging United Kingdom fundamentals. The Pound Sterling bulls, however, stalled just ahead of the 1.2450 barrier, as the focus shifts to the US growth figures in the week ahead.
GBP/USD hit five-week highs
The Pound Sterling extended its hold in the previous week, as the United States Dollar (USD) remained vulnerable near multi-month troughs amid increased bets that the US Federal Reserve (Fed) will stick with smaller rate hikes in the first quarter of this year, with a pause in its tightening cycle expected thereafter. A slew of downbeat United States economic data, viz, Retail Sales, Producer Price Index (PPI) and Industrial Production data only added to the dovish Federal Reserve rate hike expectations, offering little respite to USD bulls.
US recession fears came back to the fore midweek and fuelled a temporary recovery in the US Dollar only to be reversed by the end of the week, as mixed messages from the Federal Reserve policymakers combined with the persistent weakness in the US Treasury bond yields acted as a headwind. All in all, the Federal Reserve officials continued to root for smaller rate hikes, as markets priced in 25 basis points (bps) rates hikes in February and March. The sell-off in the US Treasury bond yields was aggravated by the Bank of Japan’s (BoJ) status quo on its yield policy, which wreaked havoc in global yields. The benchmark 10-year US Treasury bond yields finally sustained a break below the 3.50% key level.
On the other side, strong UK Jobs data, with a solid pay growth rise fanned expectations of further rate hikes by the Bank of England (BoE), despite easing inflationary pressures. The Unemployment Rate in the UK arrived at 3.7% in November. The UK Claimant Count Change came in at 19.7K in December while the wages excluding bonuses rose by 6.4% YoY in November vs. 6.3% expected. Meanwhile, the UK annualized Consumer Prices Index (CPI) came in at 10.5% in December against the 10.7% booked in November while missing estimates of a 10.6% print, the UK Office for National Statistics (ONS) reported on Wednesday. Markets remained hopeful for a 50 bps rate hike from the Bank of England at the start of the next month.
Testifying before the UK Parliament’s Treasury Select Committee last Monday, Bank of England Governor Andrew Bailey said, “the most likely outcome is that inflation will fall quite rapidly this year, probably starting in the late spring,” adding that “I am not endorsing a 4.5% bank rate peak” while talking on policy rates.
Meanwhile, Friday’s downbeat UK Retail Sales data provided Pound Sterling bulls a reason to briefly pause. The UK Retail Sales decreased 1.0% MoM and 5.8% Yoy in December, falling short of market expectations.
A busy week ahead
Amidst China’s Lunar Year-induced week-long holiday and the Federal Reserve’s ‘blackout period’, the United Kingdom S&P Global Preliminary business PMIs and the Advance Q4 Gross Domestic Product data from the United States are likely to stand out.
These data are due for release on Tuesday and Thursday respectively. In the meantime, the broader market sentiment, US corporate earnings results and the Federal Reserve rate hike expectations will continue to impact the US Dollar valuations, eventually influencing the GBP/USD pair.
The US Gross Domestic Product and the earning reports could reinforce recession fears, which could rescue the safe-haven US Dollar at the expense of the higher-yielding Pound Sterling. Although China’s reopening optimism and positioning ahead of the Federal Reserve and Bank of England policy announcements positioning could keep Cable largely supported.
GBP/USD: Technical outlook
GBP/USD: Daily chart
Having paused its upbeat momentum once again below 1.2450, GBP/USD could pull back toward 1.2295, the 23.6% Fibonacci Retracement (Fibo) level of the latest uptrend from two-month lows of 1.1841.
Should the corrective downside gather steam, Pound Sterling sellers could challenge the 38.2% Fibo level of the same ascent at 1.2207. Further down, 1.2140 will be the level to beat for bears, which is the confluence of the bullish 21-Daily Moving Average (DMA) and the 50.0% Fibo level.
With the 14-day Relative Strength Index (RSI) still holding comfortably above the midline, the bullish potential remains intact in the week ahead.
Pound Sterling bulls need to find a strong foothold above the aforementioned powerful resistance at 1.2450 to unleash the additional upside toward June 2022 high at 1.2616.
Ahead of that, the 1.2500 round figure could provide an additional hurdle on Cable’s northward trajectory.
GBP/USD sentiment poll
The FXStreet Forecast Poll for the GBP/USD pair shows that bearish are still a majority, even in the near term. On average, the pair is expected to hover around 1.2300 next week, as 50% of the polled experts are looking for lower-than-current levels. In the longer run, the spread of potential targets have continued to widen. Some firmly bearish banks oppose to analysts looking for bullish breakouts.
The Overview chart skews the scale to the upside, as moving averages are bullish in the three time frames under study, with the upper end of the range extending this week to 1.26 in the monthly view and beyond 1.27 in the quarterly perspective.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
![EUR/USD stays below 1.1100, looks to post weekly losses](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/EURUSD/european-euro-coin-on-top-of-american-dollar-bill-11292130_XtraSmall.jpg)
EUR/USD stays below 1.1100, looks to post weekly losses
EUR/USD continues to trade in a narrow range below 1.1100 and remains on track to end the week in negative territory. Earlier in the day, monthly PCE inflation data from the US came in line with the market expectation, failing to trigger a reaction.
![GBP/USD struggles to find a foothold, trades near 1.3150](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/GBPUSD/iStock-157771037_XtraSmall.jpg)
GBP/USD struggles to find a foothold, trades near 1.3150
GBP/USD stays on the back foot and trades in negative territory at around 1.3150 on Friday. The US Dollar holds its ground following the July PCE inflation data and doesn't allow the pair to stage a rebound heading into the weekend.
![Gold retreats toward $2,500 ahead of the weekend](https://editorial.fxstreet.com/images/Markets/Commodities/Metals/Gold/gold-bars-50657756_XtraSmall.jpg)
Gold retreats toward $2,500 ahead of the weekend
Gold stays under modest bearish pressure and declines toward $2,500 in the American session on Friday. The 10-year US Treasury bond yield edges higher toward 3.9% after US PCE inflation data, causing XAU/USD to stretch lower.
![Week ahead – Investors brace for NFP amid Fed rate cut speculation](https://editorial.fxstreet.com/images/Macroeconomics/EconomicIndicator/Employment/NFP/america-back-to-work-gm178972493-25143312_XtraSmall.jpg)
Week ahead – Investors brace for NFP amid Fed rate cut speculation
Here comes another NFP week, with investors eagerly awaiting the results as they try to discern the size and pace of the Fed’s forthcoming rate cuts. The weaker than expected July numbers triggered market turbulence, instilling fears about a potential recession in the US.
![Easing Eurozone inflation to back an ECB rate cut in September](https://editorial.fxstreet.com/images/Macroeconomics/Countries/Europe/Eurozone_countries/Eurozone/eu-flags-flying-at-the-european-commission-building-brussels-belgium-24759579_XtraSmall.jpg)
Easing Eurozone inflation to back an ECB rate cut in September Premium
Eurostat will publish the preliminary estimate of the August Eurozone Harmonized Index of Consumer Prices on Friday, and the anticipated outcome will back up the case for another European Central Bank interest rate cut when policymakers meet in September.
![Moneta Markets review 2024: All you need to know](https://editorial.fxstreet.com/images/IT/Testing/Review/FXSBadgeCertifiedBackg_XtraSmall.png)
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.