Published on May 29, 2023

Daily Analysis For GBP/USD 29-05-2023

GBP/USD Analysis

Key Points

• GBP/USD has experienced a rebound, benefiting from a decline in the USD index following the approval of an increase in the US debt ceiling.

• The US Dollar Index is facing significant pressure as concerns over a surge in interest rates diminish with the approval of a higher debt ceiling.

• Bank of England (BoE) Governor Andrew Bailey is committed to reducing inflation by half by the end of the year, as promised by UK Prime Minister Rishi Sunak.

Today's Scenario: - The GBP/USD pair has made an attempt to recover after trading in a sideways pattern below 1.2350 during the Asian session. This upward movement in the pair is attributed to a significant decline in the US Dollar Index (DXY) following the approval of an increase in the US debt ceiling.

The House of Representatives, led by Kevin McCarthy and the Republicans, has approved a raise in the US borrowing limit of $31.4 trillion for a two-year period. In return, the White House agreed to reduce spending for the budget but remained firm on maintaining health coverage and not increasing poverty.

Despite receding concerns about a potential default by the United States Federal government on its obligations, S&P500 futures have slightly reduced their earlier gains.

The approval of a higher US debt ceiling has put critical pressure on the US Dollar Index as fears of a sharp increase in interest rates subside. If the US Treasury had announced a default, it would have attracted credit rating agencies, leading to downgrades in the long-term credibility of the US economy. Such downgrades could have a significant impact on the US Dollar Index (DXY) and US equities.

In the coming week, investors will closely watch the release of the United States Automatic Data Processing (ADP) Employment data for May, which is scheduled for Thursday. According to consensus estimates, the US labor market is expected to show a decrease of 22,000 payrolls compared to the previous addition of 296,000.

Meanwhile, the British Pound (GBP) has shown signs of recovery as the Bank of England (BoE) is anticipated to further raise interest rates, given the persistent inflationary pressures in the United Kingdom. BoE Governor Andrew Bailey is committed to reducing inflation by half by the end of the year, as promised by UK Prime Minister Rishi Sunak.

Barclays predicts that the BoE will extend its tightening cycle beyond the June meeting and foresees an additional 25 basis points hike in August. They now anticipate the BoE terminal bank rate to reach 5%.

Diagram of GBP/USD

Economic Events: -

GMT	Event	Impact	Currency
01:00	(Austria) Pentecost Monday	None	EUR
01:00	(Belgium) Pentecost Monday	None	EUR
01:00	(Euro Area) Pentecost Monday	None	EUR
01:00	(France) Whit Monday	None	EUR
01:00	(Germany) Pentecost Monday	None	EUR
01:00	(Luxembourg) Whit Monday	None	EUR
01:00	(Switzerland) Pentecost Monday	None	CHF
01:00	(United Kingdom) Spring Bank Holiday	None	GBP
01:00	(United States) Memorial Day	None	USD
06:00	(Finland) Consumer Confidence	Low	EUR
06:00	(Finland) Business Confidence	Low	EUR
09:00	(Switzerland) Myfxbook USDCHF Sentiment	Medium	CHF
09:00	(Australia) Myfxbook AUDUSD Sentiment	Medium	AUD
09:00	(Japan) Myfxbook USDJPY Sentiment	Medium	JPY
09:00	(European Union) Myfxbook EURUSD Sentiment	Medium	EUR
09:00	(United Kingdom) Myfxbook GBPUSD Sentiment	Medium	GBP
09:00	(Canada) Myfxbook USDCAD Sentiment	Medium	CAD
09:00	(New Zealand) Myfxbook NZDUSD Sentiment	Medium	NZD
09:30	(Slovenia) Retail Sales MoM	Low	EUR
09:30	(Slovenia) Retail Sales YoY	Low	EUR
11:00	(Latvia) Retail Sales YoY	Low	EUR
11:00	(Latvia) Retail Sales MoM	Low	EUR
11:00	(Ireland) Retail Sales YoY	Low	EUR
11:00	(Ireland) Retail Sales MoM	Low	EUR
23:45	(New Zealand) Building Permits MoM	Low	NZD

Buy Scenario: - GBP/USD is recovering from its monthly losses, the first in three months, trading around 1.2360 during early Monday, as both UK and US markets observe the Memorial Day holiday. The pair is extending its rebound from early April levels as the US Dollar retreats from its multi-day high, despite the recent debt ceiling extension deal between Biden and McCarthy.

The RSI line, positioned at 14, is currently below the 50 level, indicating a floor for the GBP/USD pair around the round figure of 1.2300, along with support from the 100-day Exponential Moving Average (EMA).

However, the bearish signals from the MACD indicator and the resistance confluence at 1.2400, which includes the 50-day EMA and a descending trend line that has been in place for two weeks, are limiting immediate upside movements for the GBP/USD pair.

If the pair manages to overcome these resistance levels, the next obstacles to consider are the previous tops marked in late 2022 and the previous month, around 1.2440 and 1.2585, respectively. These levels could serve as the final defense for the bearish sentiment surrounding the Cable. Till we do not advise to buy GBP/USD.

Sell Scenario: - On the downside, a break below the 100-day EMA around 1.2300 does not necessarily imply a strong bearish trend for the Pound Sterling. There is an upward-sloping support line from November 2022, located near 1.2230, which could impede further downside movement for the pair.

However, if the support at 1.2230 is decisively breached, it may lead the way towards the key psychological level of 1.2000, with the early 2023 low around 1.1840 serving as the next significant support level. Till then we do not advise selling GBP/USD.

Support and Resistance Level: -