Analysis by Mfanafuthi Mhlongo
The GBPUSD currency is muted on Friday’s trading session following a spectacular six consecutive sessions of gains, which has seen the pair gain over 2.2% for the week and on course for a second week of gains. The pair experienced a significant uptrend as the British Pound reached its highest level against the US Dollar since April 2022. Several factors drove this surge. Firstly, the Dollar was weakened by softening US inflation data, fuelling speculation that the Federal Reserve may be nearing the end of its rate hike cycle.
Secondly, the Pound benefited from its widening interest rate advantage over other developed economies. UK core inflation has been accelerating despite the Bank of England’s hawkish stance, putting pressure on Governor Andrew Bailey to continue raising interest rates. Furthermore, strong wage growth in the UK, reaching the highest level since the pandemic, added to the attractiveness of the Pound.
Technical
The 4H chart shows the remarkable bullish momentum of the currency pair, which has helped the currency pair sustain a push above a trading range. However, the bears seem to be mounting a fightback around the weekly high, which could act as a level of significance for the market. A break above the point could confirm the bullish momentum during the session, bringing the 1.32414 price level into play. A break above the level could help the cross find buyers, propelling the price action towards 1.33492.
The Relative Strength Index (RSI) is currently in overbought territory. This implies that the market may be overextended, and a pullback could be on the horizon, with the 23.60% Fibonacci retracement likely giving significant support. A push below the level could provide short-term trading opportunities as the price action moves towards 1.29132, with the 61.80% Fibonacci retracement level and the 50-SMA (blue line) likely to provide the price action with support past the level. However, a sustained push below the 50-SMA could trigger a selloff towards the 1.27494 support level.
Summary
The cross is on course to close a second consecutive week of gains as the market bets on widening monetary policy divergence continued to provide support.
The market will closely watch upcoming UK inflation data and Bank of England commentary for further direction. Meanwhile, in the US, import and export price data, along with the Michigan Consumer Sentiment Index, will be monitored to gauge the impact on the Fed’s monetary policy outlook.
Sources: TradingView, Reuters, Dow Jones Newswire.
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