GBP/USD Fundamental Analysis
The forex pair GBP/USD is currently enjoying +0.56% gains in the 24 hours. The bullish momentum has been sparked amid the weakness of the US dollar. The traders have started to digest a series of comments from the Federal Reserve policymakers before releasing the upcoming CPI report.
The US dollar Index, which measures the value of the greenback against the basket of six major currencies, was down by -0.44% today. It gave strength to risk-based currencies like the Sterling. Meanwhile, the Bank of England (BoE) Governor Andrew Bailey is meeting the UK Treasury Committee and other BoE policymakers. It is also strengthening the British Pound.
Pound is gaining strength on the BoE commentary session
The conference is still going with Andrew Bailey, Chief Economist Huw Pill, Policymakers Silvana Tenreyro (who voted to keep interest rates at 3.5%), and Jonathan Haskel on the hot seat. Furthermore, members of the monetary policy committee (MPs) will question the Bank of England after the UK central bank hiked interest rates for the tenth time in a row last week.
Bailey and his colleagues cautioned about the risks of inflation remaining considerably above the UK’s 2% target for a long time. After inflation reached double-digit levels last autumn, the Treasury Committee is concerned that the Bank may be “behind the curve on inflation.”
MPs might discuss the likelihood of future interest rate increases and the prospects for inflation. They could also discuss the divisions inside the Bank since just 7 of the committee’s nine members backed the rate increase to 4%.
Other anticipated issues to be discussed include the influence of energy and commodity prices on inflation, the Bank’s estimate of a UK recession and gradual recovery, and how the MPC would manage the sale of the £875 billion in government bonds on its books.
Investors will closely monitor the Bank of England (BOE) officials’ statements during the UK Treasury Select Committee’s policy hearing. The Pound tries to leave its trading range in response to BOE comments. Furthermore, there is a high possibility that expected hawkish remarks would impact the Pound and cause it to rise further.
On the US side, the Unemployment Claims from last week are expected as 191K. Any figure above this level would harm the greenback, whereas any figure below this level would cap the losses in the US dollar.
GBP/USD Technical Analysis
The H4 chart of GBP/USD shows that the currency pair has started to recover its previous losses after the Bank of England Commentary. The Price is currently above the 20-Day SMA, standing at the Trend line (black line) and struggling to move past this line. Any break above the trend line would push the prices towards another crucial level at 1.21912. This is the same level where the 50-Day Simple Moving Average line is standing.
If the Bank of England Committee meeting ended up giving more hawkish comments, it would help buyers gain control of the market. It would then push the prices towards the next resistance level at 1.22474. However, in the bearish scenario, if prices failed to move past the crucial 1.21912 level, they would retreat back towards the downside. Any break below 1.20839 would mean high selling pressure. At this point, the 20-Day Simple Moving Average is providing the initial support to the currency pair. The next support level would be 1.2007.
Meanwhile, the Moving Average Convergence and Divergence (MACD) Indicator is giving bullish signals. In addition, the Relative Strength Index (RSI) also backs these positive signals with a reading above the mid-level of 50 points. The idea is to watch the currency pair move past the trend line towards the 50-Day SMA at 1.21912. Buying a position in case of any break above this level would be wise. If the price fails to break the above trend line, then staying short is advisable.
Daily Technical Levels
Pivot Point: 1.2073