The British pound was in the red against the US dollar for the fourth consecutive session on Tuesday, with GBPUSD down by 0.25% and trading at 1.2697 in the early opening minutes of the London session. The pound’s struggles are epitomized by a shift toward safe haven assets in a week marked by multiple central bank interest rate decisions.
The US dollar has strengthened significantly since mid-last week, as investors position themselves for a slew of interest rate decisions by the Bank of Japan, Bank of England, Reserve Bank of Australia and the Federal Reserve. This has seen the dollar index hover near 104.00 as of this writing.
Also, the dollar enjoys support from US Treasury yields, which have found stability above 4.300% on the benchmark 10-year and 5-year bonds. This is underpinned by a dip in investors’ confidence level regarding a June Fed rate cut. The US economy has recently signaled its struggles with inflation, much as economic growth fundamentals are relatively stable.
Meanwhile, UK policymakers have a much heavier task of guiding an economy that contracted in the last two quarters while keeping inflation down. UK CPI stood at 4.0% in January, and Wednesday’s figure is forecasted to read 3.5%. Both figures are well above the BoE’s preferred level of 2%. An August UK rate cut now looks more likely, but it could also curtail economic recovery efforts.
Away from the domestic market, the dollar enjoys safe haven buying with support from the Israel-Hamas war. The war has been ongoing for over 5 months, and the stakes have risen over the last week amid increasing prospects of Israel’s ground invasion of Rafah city.
Technical analysis
GBPUSD is on a bearish momentum, with the pivot at 1.2745. The downward trajectory will continue as long as action remains below the pivot mark. The support at 1.2690 could be broken if the sellers are in extended control. That would negate the prospects of the upside and potentially build momentum to test 1.2670. However, a move to the upside remains possible as long as action stays above 1.2745. That would potentially break the next resistance at 1.2760, which would provide a platform to test 1.2780.
