GBPUSD Slips But Remains Well Bid On Interest Rate Bets

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GBP/USD Prices, News, and Analysis

  • GBPUSD is still supported by expectations that UK rates have higher to climb
  • Strong wage data this week underlines the view
  • Technically, the uptrend from September still dominates

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Sterling bulls still have December’s six-month highs against the United States Dollar firmly in their sights on Thursday, but a London morning of scant domestic economic news may be hampering their will to try it again in the near term.

That said the Pound remains underpinned by the thesis that interest rates still have further, and possibly much further, to rise in the United Kingdom. Meanwhile, Dollar demand is being broadly sapped as markets start to suspect that the Federal Reserve may have done almost enough in that direction to head off its own inflationary problems.

Strong British wage growth numbers released this week will do nothing to alter this backdrop with inflation still running at forty-year highs despite some tentative signs that its grip may be relaxing.

The UK data schedule is empty on Thursday, however, and traders will have to settle for looking ahead to Friday when consumer confidence numbers for January and retail sales figures for December will be released. Consumers are expected to be very slightly less downbeat than they were, with retail sales forecast to have rebounded a little on the month, while still looking pretty dreadful compared with the Christmas period in 2021.

The USD side of GBP/USD may liven up a little later, with US jobless claims, housing starts, and building permit numbers coming up, along with commentary from Vice Fed Chair Lael Brainard and Boston Fed President Susan Collins. The latter has already declared herself supportive of smaller, quarter-percentage-point interest rate rises rather than the more aggressive increases we saw last year.

This is becoming rather a hot Fed topic. Philadelphia Fed President Patrick Harker. Mr. Harker said on Wednesday that he was ready for the central bank to move to a slower pace of interest rate hikes given signs that inflation’s grip is relaxing.

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GBP/USD Technical Analysis

GBPUSD Chart Compiled by David Cottle using TradingView

The dominant uptrend channel from September 28’s lows remains in place having survived a stern downside test on January 5. There doesn’t appear to be a huge appetite to re-test the December 14 peak of $1.2453 though- that was the highest point seen since June 13, 2022.

It now forms clear near-term resistance for the pair with a retest of the up-channel base likely in prospect if it can’t be retaken in the next few days. That base now comes in at $1.2056, which is admittedly quite a way below the current market. But it’s much closer than the channel top. That comes in at $1.2850 and the bulls are going to have to build a more resilient base before trying that.

Support looks quite solid at the first Fibonacci retracement of the rise up from those September lows. That’s at $1.20638, and the market oscillated around that level very clearly from late December to early January.

Below that, the second retracement level of $1.17792 is where the market bounced on January 5. This level looks rather less firm, however, and bulls may be anxious that it is not re-rested.

IG’s sentiment index finds the market cautious at these levels.59% of respondents said they were bearish here, with 41% bullish.

—By David Cottle for DailyFX





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