- For four consecutive trading sessions, the GBP/USD currency pair has broken out of an ascending channel, reaching the resistance level of 1.2522.
- At that point, we recommended selling GBP/USD, but without taking excessive risk.
Meanwhile, The strength of the US dollar continues to prevail. Simultaneously, the UK's financial crisis and the new government's plans are impacting the pound's attempts to recover. Recently, the latest profit-taking has pushed the pair towards the support level of 1.2386, where it closed the week. The downward movement will continue until markets and investors react to the Bank of England's announcement and US employment figures in the new trading week.
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Bond Market Gives GBP Some Momentum
Before Trump’s trade tariffs were approved, the US dollar was supported by buying. Also, the pound had gained some momentum from evidence of overseas buying of UK bonds and lower US yields. According to forex experts, the GBP/USD performance could remain above the 1.2470 resistance, supporting a bullish rebound for the currency pair.
On the economic front. UK mortgage approvals rose slightly to 66,500 for December from 66,100 previously and above expectations of 65,000. Newsworthy, the Bank of England announced on Wednesday a new facility to support the UK bond market in the event of market turmoil. The Bank of England will lend cash to non-bank financial institutions if there is market stress.
Commenting on the measures and response, ING Bank said: “While these efforts to restore confidence are very welcome – and have helped the sterling trade-weighted index recover around 1% from its lows earlier this month – we still feel that sterling is weak.”
The bank therefore expects fiscal policy to be tightened in the March Budget, with tighter policy and lower inflation leading to four interest rate cuts by the Bank of England this year, which will undermine sterling. Scotiabank was more upbeat on the outlook overall, stating: “The data also showed a strong increase in net foreign demand for UK Treasuries at the end of the year, suggesting that foreign investors are looking at recent concerns about the sustainability of the government’s fiscal plans amid rising global bond yields.”
US Dollar Performance and Central Bank Policies
The US dollar’s performance in the currency market reacted to last week’s announcement, as the Federal Reserve kept US interest rates at 4.50%, in line with market expectations. For his part, the Chairman of the US Federal Reserve, Powell, confirmed that the central bank could be cautious about cutting interest rates further, but he still expects there to be room to reduce rates towards a neutral level in the medium term.
Economically, the US GDP grew at an annual rate of 2.3% in the fourth quarter of 2024 from 3.1% previously and less than the expectations of 2.7%. furthermore, strong increases in consumer and government spending were offset by a decline in investment. At the end of the week, the Personal Consumption Expenditures price index was announced to rise to 2.2% from 1.9%, but less than the expectations of 2.5%.
Trading Tips:
The British pound will be subject to the reaction to the announcement of the British Central Bank and the US jobs numbers this week and the reaction to the US tariffs
Technical Analysis for the GBP/USD pair today:
According to the daily chart, GBP/USD selling represents the initial breakout of the recently formed upward channel, and bulls failed to break the 1.2550 resistance. Over that period of time, the support 1.2290 will remain the key to the strength of the bears' control again and thus prepare to move towards stronger support levels. The most important crowning will be testing the psychological support 1.2000, which in turn will move the technical indicators towards strong saturation levels with selling. In contrast, and over the same period of time, the resistance 1.2630 will remain the most important for the bulls to start controlling the trend. GBP/USD performance will remain subject to the reaction to US data, Bank of England policies, and investor sentiment towards US administration policies.
Finally, we still prefer to sell GBP/USD from every upside level.
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