The British Pound (GBP) has seen a rise of 0.15%, reaching approximately 1.3245 against the US Dollar (USD) during the early European session on Monday. This increase in the GBP/USD pair occurs as the British currency surpasses its competitors, even though analysts express doubts about the aggressive rate hikes forecasted by the Bank of England (BoE).
According to strategists at Brown Brothers Harriman (BBH), there’s a noticeable gap between market expectations and their predictions regarding the BoE’s policy direction. They mention that, as per the swaps curve, there’s an implication of around 100 basis points of rate increases over the next year, pushing rates to 4.75%. However, they believe the BoE may not have to tighten monetary policy to such an extent, arguing that current rates are already in a neutral range of 2% to 4%.
Last week, BoE Governor Andrew Bailey highlighted at the Monetary Economics Conference that persistently high energy prices could challenge the central bank’s decision to avoid raising interest rates.
On another note, the US Dollar has opened the week slightly higher, with US Treasury Yields hovering near a significant 19-year peak of 5.23%. Investors are likely to focus on the upcoming Nonfarm Payrolls (NFP) data for September, set for release on Friday.
GBP/USD Technical Analysis
In technical terms, GBP/USD is trading around 1.3240, showing a bearish bias in the near term as it remains below the 20-period exponential moving average (EMA) at 1.3387. The pair has been declining from its late-July highs, and the EMA now acts as a resistance level, indicating that any rebounds may be restricted as long as this barrier holds.
The Relative Strength Index (RSI) stands close to 28, indicating oversold conditions, which may suggest that while there is continued downward pressure, the speed of the decline could ease if sellers pause at lower price points.
Analysts from UOB Group point out that GBP/USD has experienced a sharp decline since last Wednesday, hitting a low of 1.3205 before closing 0.16% lower at 1.3219. They note the market conditions are deeply oversold due to this drop, yet the outlook for the GBP remains negative. However, they expect any further decline to stay within a range of 1.3190 to 1.3245 in the short term.
Looking further ahead, UOB reflects on their September 23 remarks when GBP was at 1.3345, indicating uncertainty on whether it could dip below 1.3300. They didn’t foresee GBP breaking through this level easily and acknowledged the recent low of 1.3205. While the ongoing weakness seems overextended, they believe there’s a chance GBP could test the June low of 1.3140 before a stabilization occurs. On the upside, a break above 1.3295—previously noted as a strong resistance at 1.3390—would suggest that the 1.3140 mark may not be reached.
