GBPUSD was up +22% and trading at 1.2625 at 8.26 am GMT, as traders held on for cues on the dollar’s next move. US markets are closed on Monday for the George Washington Birthday holiday, and traders are waiting for hints from the FOMC meeting minutes scheduled release on Wednesday. In the meantime, it seems sensible to continue riding on last week’s gains by the GBMUSD, headlined by positive Retail Sales data.
Thursday’s GDP release confirmed that the UK economy entered a technical recession in Q4 if 2023. However, the market seems more inclined to ride on the positive retail sales data, because, ultimately, it will determine the next interest rate decision by the Bank of England. The BOE is largely expected to retain the current 5.25% interest rates, boosted by the growth in consumer spending to +3.4% in January, from December’s -4.4% contraction.
Furthermore, the UK inflation seems to have flattened out but BoE governor Andrew Bailey says that they will need more proof that the economy has cooled before cutting rates. Furthermore, a stable labour market could give the BoE a solid basis to retain the current interest rates beyond March. In the meantime, the pound will likely continue reversing its recent losses against the US dollar, as the market awaits Wednesday’s FOMC minutes.
The US dollar could, however, gain some strength if yields on indicative 10-year and 5-year bond rates keep rising. The two have risen 4 basis points and 5 basis points respectively as of this writing, and further gains could tilt the scales in favour of the dollar.
Technical analysis
GBPUSD looks set to pivot at 1.2580, and the RSI indicator favours upside action. With the buyers in control, we are likely to see the pair rise to meet the first resistance at 1.2645. An extensive control by the bulls beyond that point will likely put 1.2665 within reach. However, a slowdown in the momentum could see more action below the pivot point, and a slip beyond 1.2560 will invalidate the bullish view. At this point, the bears could possibly pull the support lower to 1.2540.
GBPUSD on a 30 minute chart