Basic overview
The dollar weakened as last week’s FOMC decision, in which the Fed decided to signal an expansion of QT taper starting in June, was more dovish than expected, and Fed Chairman Jerome Powell repeatedly rallied against expectations for rate hikes. There has been a general decline recently. Additionally, Friday’s data showed that the Fed may indeed keep interest rates high for an extended period of time as job and wage growth slows. The dollar has been erasing some of its losses this week, but overall exchange rates have remained mostly range-bound as we await next week’s U.S. Consumer Price Index (CPI) report.
Meanwhile, the pound is rising, mainly due to a weaker US dollar and risk-on sentiment. Tomorrow is the BOE’s interest rate decision, with the central bank expected to keep interest rates unchanged at 5.25%. In the latest inflation report, headline and core statistics slowed further, while labor market data showed higher unemployment and job losses, along with higher wage growth. At the last meeting, the vote split changed, with the most hawkish MPs joining the Hold camp and Mr Dhingra remaining his usual opponent, voting in favor of the cuts. The market expects the first rate cut to occur in September, and it is unlikely that the BOE will make any major changes in its next decision.
GBPUSD Technical Analysis – Daily Timeframe
GBPUSD Daily
On the daily chart, we see that GBPUSD surged above the trend line after the US NFP announcement, but was ultimately rejected from the 1.26 handle, erasing all gains leaving the possibility of a fakeout. Masu. This is generally a reversal pattern, but it is better to combine it with a catalyst. Right now, we’re in a kind of stalemate where the market is pricing in aggressive rate cuts and is pretty stable around current pricing. The pair currently appears to be primarily driven by risk sentiment.
GBPUSD Technical Analysis – 1 Hour Timeframe
pound dollar 1 hour
On the hourly chart, we can see that from a risk management perspective, sellers set a better risk and reward around the previous support turning into resistance around the 1.2530 level. In fact, if the price breaks above the resistance and trend line, the bearish setup is technically invalidated and buyers may rally with more confidence towards a rally to new highs.
Future catalyst
Tomorrow we will see the announcement of the BOE’s policy decision and the number of US unemployment insurance claims. On Friday, the University of Michigan Consumer Sentiment Survey will be conducted. Price trends are likely to remain tentative heading into next week’s US CPI as we are unlikely to see any major changes in market expectations.
