The GBP/USD exchange rate corrected higher from near-COVID lows ahead of the weekend, but it may try to regain more ground lost. The GBP/USD pair rose to the resistance 1.2033 at the beginning of this week’s trading, before settling around the 1.1950 level, waiting for anything new. The currency pair took advantage of the US dollar’s gains halted and may remain so for a while if the weak US interest rate expectations of the Federal Reserve (Fed) continue in the market. It weighs on the dollar
The dollar was broadly sold as other currencies were bought on Friday and significantly after a survey by the University of Michigan (UoM) indicated that consumers’ expectations of long-term inflation rates waned in July, reinforcing the downward correction of expectations on the Federal Reserve interest rate. Federal Reserve officials have indicated that they are likely to raise US interest rates by 0.75 percentage points later this month, for the second meeting in a row, as part of aggressive efforts to combat high inflation.
All of this came after Atlanta Fed President Rafael Bostic reportedly followed in the footsteps of Board Governor Christopher Waller and St. Louis Fed President James Bullard on Friday by signaling their reluctance to raise US interest rates by a full percentage point in July. Financial market pricing on Wednesday and Thursday suggested investors were giving credence to the prospect of a 1 percent US interest rate hike after June inflation figures suggested that the journey back to the Fed’s 2% target could be longer or more difficult than many have presented. for credit.
But on Thursday it appeared that both Christopher Waller and James Bullard had poured cold water on the idea, driving down future interest rates implied by index swap contracts, leading to a situation on Friday where a 0.75% increase in US interest rates was priced in. – Almost to perfection.
Kevin Cummins, chief US economist at Natwest Markets, said: “While a significant rise in energy prices was widely expected, the moves in core metrics in the two reports were more of a surprise and indicate that inflation will remain the Fed’s primary concern.”
This week is devoid of significant events in the US calendar and no comment from Fed officials is likely to bring now that a blackout period at the July meeting is in effect, leaving the GBP/USD outlook to be determined by the data calendar and the busy UK market. An appetite for the dollar. And about the expected for the pound sterling. “Sterling remains bearish, and ultimately we still want to sell rallies, but look at US retail sales today for further guidance,” Nike at JPMorgan wrote in the London FX Desk Daily on Friday morning.
The US dollar has benefited greatly from investor concerns about the outlook for the US and global economies as well as the strong Fed interest rate expectations in recent months, but US economic data last week and recent statements from Fed officials now have the market wrong.
I still prefer to sell the GBP/USD pair from every bullish level, as the sterling is still facing many pressure factors, the most prominent of which are the ambiguous political situation in Britain, the divergence of the future of raising interest rates between the Bank of England and the US Federal Reserve, and fleeing to the dollar as a safe haven amid concern over global geopolitical tensions and renewed pandemic fears. The nearest resistance levels for GBP/USD are currently 1.2045, 1.2135 and 1.2220, respectively.
On the other hand, according to the performance on the daily chart, stability below the 1.1900 support will bring the bears more momentum to move downwards and evaporate the hopes of the upside.