- The GBP/USD pair is currently experiencing a period of stability after retracing from a 15-month high.
- Despite the UK securing its largest trade deal since Brexit, concerns regarding employment conditions and a subdued housing market have dampened buyer sentiment for the British Pound.
- Pound Sterling traders face challenges due to a combination of US data releases, market consolidation, and the Federal Reserve's blackout period.
- Clear direction for the GBP/USD pair will depend on the outcome of US Retail Sales and UK inflation data. Intraday movements may also be influenced by various risk factors.
Today's Scenario: -
GBP/USD remains rangebound around 1.3090 during the early Asian session on Monday, following a reversal from its 15-month high. The Pound Sterling finds it difficult to rally despite news of the UK's significant trade deal after Brexit, as economic concerns continue looming over Britain. Cable buyers also face challenges due to market doubts surrounding the Federal Reserve (Fed) during the two-week blackout period leading up to the late July monetary policy meeting.
The UK's official entry into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), announced on Sunday, represents London's largest trade achievement since Brexit. However, worries about declining home prices in the UK and the potential for further medical strikes undermine trade optimism. Additionally, the call from a UK consumer group for government intervention on grocery prices, as reported by Reuters, raises grim concerns about the UK economy and dampens the bullish sentiment for GBP/USD.
Mixed UK data and positive consumer inflation signals in the US also contribute to the bullish sentiment for GBP/USD, allowing the currency pair to retreat after posting its largest weekly gain since November 2022.
Last week, UK Gross Domestic Product (GDP) for May contracted by -0.1% month-on-month (MoM), surpassing the expected -0.3% but falling short of the previous 0.2%. Furthermore, Industrial Production in May declined by -0.6% MoM, worse than the previous reading of -0.2% and market forecasts of -0.4%. Manufacturing Production for the same month showed a figure of -0.2% MoM, beating expectations of -0.5% but lower than the previous -0.1%.
In response to the mostly negative data, UK Chancellor Jeremy Hunt stated that while an additional bank holiday impacted growth in May, high inflation continues to hinder economic growth. The policymaker added that the most effective way to revive growth and alleviate the pressure on households is to reduce inflation as quickly as possible. The plan is expected to be successful, but it requires adherence.
On the other hand, the University of Michigan's (UoM) preliminary reading of the Consumer Confidence Index rose to 72.6 in July from 64.4 in June, surpassing market expectations of 65.5. The survey also indicated an increase in one-year and five-year consumer inflation expectations to 3.4% and 3.1%, respectively, compared to the previous readings of 3.3% and 3%. Prior to that, the US Consumer Price Index (CPI) and Producer Price Index (PPI) for June decreased to 3.0% and 0.1% year-on-year (YoY) from 4.0% and 0.9% YoY, respectively. This resulted in a weaker US Dollar, propelling the EUR/USD pair to its highest level since February 2022.
Additionally, comments from US Treasury Secretary Janet Yellen and New Zealand's Chris Hipkins expressing concerns related to China have provided support for the US Dollar, allowing the GBP/USD bulls to take a breather.
In terms of market sentiment, S&P 500 Futures indicate slight losses, while US Treasury bond yields are recovering from a negative weekly close.
Looking ahead, GBP/USD traders should closely monitor this week's UK inflation data and the US Retail Sales figures for clearer market direction, especially as concerns persist about the Bank of England's (BoE) hawkish policy in light of economic fears.
Diagram of GBP/USD: -
Economic Events: -
Buy Scenario: -
On buying side of GBP/USD, the bulls might wait for sustained buying momentum above the 1.3140 region, or the multi-month high, before entering new positions. If this level is surpassed, the GBP/USD pair could gather momentum and move towards the 1.3200 mark. The upward trend could then extend towards the intermediate hurdle of 1.3250-1.3260, and a breakthrough could propel spot prices further to reclaim the 1.3300 level for the first time since March 2022. Till we do not advise to buy GBP/USD.
Sell Scenario: -
From a technical perspective, last week's sustained breakout above a resistance level represented by the upper boundary of an ascending channel that has been forming for almost a month confirms the positive outlook. However, oscillators on the daily chart are signaling slightly overbought conditions, which is causing some hesitation among traders in placing fresh bullish bets on the GBP/USD pair. With no significant macroeconomic data from the UK, it would be prudent to wait for some near-term consolidation or a minor pullback before considering further appreciation in the near term.
In the meantime, the immediate support level is expected to be around 1.3040-1.3035, followed by the psychological level of 1.3000. A decisive break below 1.3000 might trigger some technical selling, potentially pushing the GBP/USD pair towards the next relevant support near the 1.2930 horizontal zone. However, any subsequent decline could attract fresh buyers near the round figure of 1.2900, which should help limit the downside, with a key resistance level at 1.2850.
Till then we do not advise selling GBP/USD.
Support and Resistance Level: -
S1 1.3074 - R1 1.3127
S2 1.3055 - R2 1.3161
S3 1.3021 - R3 1.3179