Last week’s exciting trading saw the GBP/USD price fall sharply on expectations that the Bank of England would follow the European Central Bank’s lead and end the tightening cycle. The decline in GBP/USD against these expectations pushed the pair above the 3-month low support level at 1.2378. In general, the European Central Bank’s cautious policy announcement last Thursday ultimately led to the dollar winning, and the pound’s exchange rate against the dollar depreciated.
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Investors are upping their bets after the European Central Bank decided to raise interest rates but signaled a long-term pause, with the Bank of England likely to do the same this week. Francesco Bisol, a foreign exchange analyst at ING Bank, said: “The emergence of a cautious European Central Bank and again strong US activity data have helped the dollar rise again.”
The European Central Bank also said interest rates had reached a level that “if maintained long enough, would make a significant contribution to bringing inflation back on target in a timely manner.”
This suggests that even for the average person, further interest rate hikes are not imminent in the short term, leading to lower euro zone bond yields and the price of the euro. And according to some analysts, “we were expecting a hard stop, but what we got from the European Central Bank at the central bank board meeting was more like a rate hike.” After raising its key interest rate by 25 basis points, the European Central Bank now feels that interest rates are at an appropriate level. ”
Bond and foreign exchange market trends reflect market expectations for interest rate cuts by the European Central Bank before 2024. At the same time, further interest rate hikes by the US Federal Reserve cannot be completely ruled out (although that is not our criteria) and the market has seen a rise in interest rates by the US Federal Reserve in recent days on the back of resilient US economic indicators. We are being forced to reassess expectations for deep interest rate cuts.
This evolution in relative expectations for monetary policy helps explain the euro’s losses against the dollar, but what about the pound?
First, a broad rise in the dollar could always have an impact on the pound and other US dollar pairs, albeit less so than the euro against the dollar itself. However, as mentioned above, the market sees an increasing risk that the Bank of England will follow the European Central Bank and raise interest rates again next Thursday, marking a peak.
Bank of England Governor Andrew Bailey said the bank was close to a final rate hike. So while the pound fell following Mr Bailey’s comments to British MPs in the UK Parliament, further downward corrections will occur if these comments are made public when new guidance is published on 21 September. Probability is high. The Bank of England has raised interest rates to 5.25%, but given the high interest rates, inflation is likely to rise again. However, figures released this week revealed that Britain’s unemployment rate is trending upwards, with upward pressure on wages beginning to ease soon and inflationary pressures easing.
Banks will feel their job is done, but for sterling this could mean further losses.
- According to today’s chart performance, the general trend of the Pound currency vs. US dollar GBP/USD is still in the downtrend.
- The break of the 1.2400 support confirms how much control the bears have on the trend.
- It moves the technical indicators towards a strong sell saturation level.
- Further losses for the currency pair cannot be ruled out if the Bank of England confirms market expectations this week at the end of the tightening cycle.
Currently, the closest support levels for this currency pair are 1.2340, 1.2280, and 1.2190, respectively. From his second level to the end, it is better to consider buying the currency pair again. Meanwhile, during the same period, the bulls should move towards the 1.2550 and 1.2730 resistance levels to break the current downtrend.
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