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Analysis of the British pound against the US dollar GBP/USD: Stability characterizes performance


Analysis of the British pound against the US dollar GBP/USD: Stability characterizes performance

Amid limited trading, the price of the GBP/USD pair is stable around the 1.2658 level, and its gains since the start of this week’s trading have not exceeded the 1.2700 resistance level. The reaction from the American data may have an impact on determining the course. In the same trading, the price of the pound sterling is drifting lower against the euro, and inflation in the European Union is decisive this week. In general, there are no major data from Britain this week, and the focus is likely to be on the talk of global central banks and inflation data in the euro zone. The pound to euro (GBP/EUR) exchange rate rose to 1.1725 on Friday before falling to near 1.1700 and trading just below that level on Monday. The 1.1765 level remains a major resistance area.

According to ING Bank; “EUR/GBP will be affected by a speech from Lagarde and Eurozone CPI data on Friday. Here we expect some stability around the 0.8550 level.” For its part, MUFG Bank still expects the GBP/EUR pair to achieve progress; “We maintain the idea of trading EUR/GBP short even though the pair struggled to regain downward momentum over the past week.”

The bank has a long-term target of 1.2080 for the GBP/EUR pair.

MUFG Bank has a positive stance on the UK's outlook; He stated, “We are more optimistic that the outlook for the British economy will improve at the beginning of this year.” Leading indicators such as Purchasing Managers' Index (PMI) surveys suggest that growth is on the rise creating a more supportive backdrop for sterling. The bank also notes that the recent rise in business confidence has been stronger in Britain than in the eurozone. If this trend continues, there will be a net boost to the British pound.

As for the Bank of England, the chances of an interest rate cut in June have fallen to less than 50%. Overall cost pressures within the economy will continue to be closely monitored. Domestic pressures from rising wages will remain an important element for the Bank of England. Global pressures will also have an impact on potentially significant Red Sea developments. According to the latest survey conducted by the British Chambers of Commerce (BCC), more than 50% of manufacturers and exporters were affected by the disruption of shipping through the Red Sea. For its part, MUFG Bank added: “We expect the Bank of England to start cutting interest rates after the European Central Bank and the US Federal Reserve put upward pressure on the pound in the near term. The larger fiscal handout in the government's Budget on March 6 could provide a fresh incentive for further sterling gains.

On the other hand, the latest COT data recorded a slight decline in non-commercial long GBP positions to 46,300 contracts from a 6-month high of 50,500 previously. In contrast, there was an increase in euro long positions to 68,000 from 16-month lows of just under 53,000 the previous week. The data suggests that the overall momentum of closing long EUR positions and increasing GBP long positions may be reaching a turning point. If this is the case, the pound will need positive fundamental developments in the UK to make further progress against the euro.

Expectations for the British pound against the US dollar today:

During today's trading, the GBP/USD currency pair is almost exiting a limited upward channel that was formed recently, and moving towards the support level of 1.2580 will negatively affect the future of that channel, and accordingly the bears' control will increase, especially if the US economic growth numbers come stronger than all expectations, which they support. The path of tightening the US Central Bank’s policy. On the other hand, if the numbers are weaker than all expectations, the bulls may test the 1.2775 resistance again, which supports the upward shift.

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