The bullish outlook for the British Pound is set to be tested this week with Thursday’s Halifax Housing Index data and hawkish commentary from BoE MPC uber dove Dr. Swati Dhingra.
Key Points
- NFP volatility pushes the pound to 8-week lows.
- BoE external member Dhingra maintained a ‘higher for longer’ narrative, stunting a recovery rally.
- Bigger picture momentum is pointing to further sterling weakness over the next couple of weeks.
- Sustained break lower could see Sterling printing 1.24’s before the end of the month.
GBPUSD Economic Outlook
GBPUSD struggled to recover yesterday after Friday’s stronger-than-expected US jobs data left cable under pressure in early week trading, falling -2.00% from last week’s high of 1.2772. This drops the pound to the bottom end of a range-bound market which has lasted for over 8 weeks.
External MPC member Dhingra said the Bank Of England should not take risks with the UK economy, and monetary policy will remain restrictive. Acknowledging the lack of decline in service sector inflation, hawkish commentary from the MPC’s most dovish member hampered the rally in sterling throughout the London session, which failed to close the day above the key resistance level of 1.2603. https://www.tradingview.com/x/0tpiyx37/
UK Housing Data In Focus
Investors will next focus on Wednesday’s Halifax House Price Index to provide some much-needed volatility for a currency with a ‘low key’ start to the year. The consensus is forecasting a downtick for the UK housing market, 0.8% from the January reading of 1.1%. A softening in the data could give the market the excuse to anticipate earlier than suggested rate cuts and push GBPUSD back into the 1.2600 – 1.2735 range. Without a higher print in the housing data, it’s difficult to see how the pound will rally from here, at least in the short term. https://www.tradingview.com/x/aBDzxIz1/
RSI Topping Out Already on the Recovery Rally
Momentum from the RSI on the daily timeframe has taken a marked step lower. On the smaller 15-minute timeframe, we touched the overbought level of 70 twice in today’s session. Any rally from here is likely to be met with resistance under 1.2668, which temporarily paused Friday’s bear move lower. Failure here could push the pound lower to the mid-November support range of 1.2500 – 1.2379. The top end has already been tested once meaning sterling could be trading around 1.24 by the end of the month. https://www.tradingview.com/x/0PYVsizs/
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