- As the US dollar weakens, the GBP/USD has risen beyond 1.2540.
- Bears remain optimistic as the BOE has a more difficult path to policy tightening than the Fed.
- Brexit concerns loom over the pair also.
GBP/USD fundamental forecast
At the London session, GBP/USD is hovering at 1.2541, with a 0.40% increase so far.
The DXY appears unlikely to reclaim its 19-year high of 103.93 as doubt about the Federal Reserve’s (Fed) rate rise decision fades. As a result, a risk-on impulse gains strength, and risky currencies gain appeal.
Given the fall in US 10-year Treasury rates from the highest level since late 2018 by the end of Monday, USD traders saw the quiescent bond market as a chance to recoup recent gains after renewing the multi-day high.
The dollar is predicted to stay cautious as the FOMC meeting begins on Tuesday and is projected to deliver a 50 basis point interest rate rise on Wednesday.
At the same time, other pronouncements about the future rate path and the balance sheet reduction should also keep the greenback interested.
The Bank of England plans to maintain a more cautious perspective on the need for additional tightening. Accordingly, it delicately balances upside inflation risks against downside economic risks when deciding policy.
The pound’s weakness would be exacerbated if the Bank of England indicated that rate rises might be suspended sooner due to slower growth. Following municipal elections set for later this week on May 5th, the GBP might experience more selling pressure.
If the Conservative Party performs considerably worse than projected, Prime Minister Boris Johnson will stand a vote of no confidence. An increase in political instability would deepen the existing adverse mood toward the GBP.
Brexit has long been a source of frustration for UK officials, and the latest impasse has resulted in British expats being unable to drive in Spain.
In other news
Elsewhere, Germany backs down from prior calls to prohibit Russian oil imports, adding to the geopolitical tensions encircling Kyiv and supporting the US dollar’s safe-haven demand. The tighter activity lockdowns in Beijing due to the Covid comeback also promote the push.
Key data releases from the GBP
On the GBP docket, we had S&P manufacturing PMI today.
Key data releases from the US
From the US, we have Factory Orders for March.
What’s next to watch for GBP/USD?
The Fed’s interest rate decision will be followed by the BoE’s monetary policy meeting, which will prolong volatility this week.
GBP/USD technical analysis: bulls going good but for how long?
GBP/USD has gained some pace today and has increased by 0.40%. At the time of writing, the pair is trading at 1.2540. The pair is way below its 100-day moving average on the daily chart, and the RSI is at 30.
GBP/USD is now hitting the 1.2540 level. A fall below 1.2446 will bring the pair towards the 1.2397 support level. If the pair falls below this level again, it will challenge the next support level, 1.2321.
On the upside, the pair can go towards the next resistance level, around 1.2570. A break over 1.2646 will pave the door for a test of the following resistance level of 1.2695.