The GBP/USD pair has been on a strong downward correction path for the second week in a row, reaching its lowest level in five months at 1.2425. The US dollar is driving this downward pressure, but there may be a potential pullback this week as the pace of recent advances may be too fast.
Shaun Osborne, a Senior FX Analyst at Scotiabank, noted that sterling closed bearishly last week, breaking below the 1.25 support area. This leaves sterling vulnerable to further weakness, with support at 1.2465 and a risk of returning to the 1.22/1.23 range.
The US dollar’s strength is fueled by a massive repricing in Fed expectations following the US inflation report, leading to increased volatility and a higher dollar. Market expectations now rule out a Fed rate hike in June and predict only one or two hikes in 2024, while other central banks are expected to cut rates more aggressively.
While the US dollar may continue to gain momentum this week, the recent data may not be enough to support significant gains. This could provide some support for sterling in trading this week.
Upcoming economic calendar data includes the release of US retail sales, which may confirm strong consumer demand and drive inflation. UK wage figures for February and a speech by Bank of England Governor Andrew Bailey will also impact GBP/USD trading.
Bailey’s speech is important as it will bridge the gap to the May meeting, and any sign of increased confidence in cutting rates could weaken GBP/USD. Wednesday brings more inflation data from the UK, which will also affect the currency pair.
Technical forecasts suggest a downtrend for GBP/USD, with caution advised when considering buying the currency pair. The reaction to economic data and central bank policies will continue to influence the performance of the sterling dollar in the coming days.