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The Pound Stays Strong Near 1.2700, Even Though the US Dollar Stays Stable

Leon Kramer

ByLeon Kramer

May 18, 2024
The Pound Stays Strong Near 1.2700, Even Though the US Dollar Stays Stable

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  • The Pound Sterling pulls back from 1.2700 as attention turns to UK inflation data.
  • Market participants anticipate that the Bank of England may commence a gradual decrease in interest rates during either the June or August gathering.
  • The US Dollar’s recovery is bolstered by the Federal Reserve’s more aggressive position on interest rates.

The British Pound (GBP) remains unchanged in Friday’s American session following a recent peak at 1.2700 on Thursday. The GBP/USD pair is facing challenges in its attempt to gain further momentum, as market participants are now turning their attention to the upcoming release of the United Kingdom Consumer Price Index (CPI) data for April, scheduled for publication on Wednesday.

The UK inflation data will offer new insights into the outlook for interest rates. Investors are still split between the June and August meetings regarding the potential commencement of interest rate reductions by the Bank of England (BoE). 

The upcoming inflation data for April is anticipated to have a substantial impact on the future direction of the Pound Sterling. BoE Governor Andrew Bailey mentioned, following the release of the CPI data for March on April 17, that inflation in the UK is projected to approach its target of 2% next month.

The inflation rate has been decreasing in line with the BOE’s forecast from February. Bailey stated, “I anticipate a significant decrease in next month’s figure due to the distinctiveness of our energy pricing system for households in the UK,” according to Bloomberg.

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The Upward Movement of the Pound Sterling Is Halted as the US Dollar Recovers

  • The Pound Sterling’s surge towards the critical resistance level of 1.2700 comes to a halt as market sentiment becomes mildly cautious. Fed policymakers are resisting market expectations for rate cuts, even though there is an anticipated decline in US inflation data for April.
  • Several Federal Reserve policymakers took turns addressing the future of interest rates on Thursday. Based on their analysis, it appears that the current interest rate framework is considered to be the most suitable in the current situation. Policy experts indicated that a solitary decrease in inflation statistics is not enough to instill the assurance that the process of reducing inflation has resumed following a halt in the first quarter of this year.
  • Strongly worded statements from Federal Reserve officials have dampened expectations for potential interest rate cuts, leading investors to believe that the earliest opportunity for the central bank to make a move will be at the September meeting. According to the CME FedWatch tool, there has been a slight decrease in the likelihood of interest rates decreasing in September. The probability has gone down from 73% to 68% after the inflation data was released.
  • The Federal Reserve’s decision to continue with a policy of keeping interest rates elevated for an extended period has provided some respite to the US Dollar. The US Dollar Index (DXY), which monitors the value of the Greenback against six major currencies, bounced back to 104.66 after reaching a new monthly low near 104.00 on Thursday. However, it is still expected to end the week with a negative performance.
  • Furthermore, investors’ apprehensions regarding the robustness of the US labor market intensified as the Department of Labor revealed on Thursday that Initial Jobless Claims for the week ending May 10 exceeded expectations. The number of people filing for unemployment benefits for the first time was 222K, slightly higher than expected but lower than the previous reading of 232K, which was the highest in eight months. 

There Is Pressure on the Pound Sterling Near 1.2700

The Pound Sterling has made significant progress, reaching the 61.8% Fibonacci retracement level (calculated based on the March high of approximately 1.2900 and the April low of 1.2300) at 1.2670 when analyzed on a daily timeframe. After an apparent breakthrough above the significant resistance level of 1.2700, there is potential for further upward movement in the GBP/USD pair. 

Unfortunately, the Pound Sterling will face significant support levels at the 50-day and 200-day Exponential Moving Averages (EMAs), which are currently trading at approximately 1.2565 and 1.2536. These levels are expected to provide strong support for the currency.

The 14-period Relative Strength Index (RSI) has entered the bullish territory of 60.00-80.00, indicating that the momentum has tilted towards the upside.

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Leon Kramer

Leon Kramer

Leon Kramer, a renowned financial author, enlightens Main Forex News readers with his deep understanding of currency markets. His years in global finance, combined with an intuitive grasp of trends, delivers insightful, up-to-the-minute foreign exchange analysis.

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