British Pound Weekly Forecast: Bullish
- A big week of domestic economic happenings is coming up
- Official inflation data are due, followed sharply by the Bank of England’s June rate decision
- Both are likely to bring Sterling buyers out
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The British Pound has climbed to fourteen-month highs against the United States Dollar and the coming week’s economic events seem likely to see it make further gains yet.
The currency’s rise has been predicated on the basis that the Bank of England still has much more interest-rate hiking yet to do than the US Federal Reserve if the United Kingdom’s particularly acute inflation problems are going to go away.
The coming week will bring both official inflation numbers (for May), on Wednesday and, just a day later, the Bank of England’s June monetary policy decision.
The last set of Consumer Price Index figures showed a modest deceleration for annualized inflation. However, at 8.7% it’s still far above the 2% which the Bank of England is charged with targeting. (The rate hasn’t been down there since May 2021). Moreover, the food price inflation which so hits low-income earners remains rampant.
Wage rises are also starting to speed ahead, and the Bank of England may well feel that it’s now racing too, against time, to stop inflation expectations from becoming entrenched.
Throw in a still-tight labour market and a UK economy performing rather better than the admittedly very gloomy forecasts it faced at the start of this year, and the case for higher interest rates and, thereby, a higher pound is a very strong one. Economists reportedly expect a quarter-percentage-point rise in the key Bank Rate this week. That would take it up to 4.75% the highest since April 2008. It’s possible that the BoE could go for a bigger, half-point increase.
Of course, Sterling has already seen some very sharp gains, and strong inflation numbers this week, allied to a hawkish Bank of England, could see some decide to take profit toward the end of the week. But, even with that risk on the table, the path of least resistance for sterling still looks as though it leads higher.
Another risk might be that the Fed itself sounds more hawkish when its own rate-setters comment this week.
GBP/USD Technical Analysis
Chart Compiled Using TradingView
GBP/USD has soared above the top of a broad and well-respected uptrend channel which has been in place at least on a daily closing basis since March 21 and is in any case an extension of the rise seen from the lows of March 7.
That channel now offers support at 1.27057, not very far from current market levels. A daily or weekly close above this is likely to embolden the bulls still further and put the psychlogically important $1.30 zone into play, a level last seen back in April 2022, and from which Sterling’s fall was deep and sharp.
There’s likely to be a cluster of support around 1.2620, where the market hovered between May 5 and 11. Below that, we find the first Fibonacci retracement of the rise up from the low of March 8 to the recent peak of June 14. That comes in at 1.2486 and looks pretty safe absent a major reversal.
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—By David Cottle for DailyFX