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GBPUSD Market Update

1/10/2023 11:00 AM

The British pound is trading with mixed dynamics, holding close to 1.2160. The day before, the GBP/USD pair was growing moderately, continuing the development of the ultra-short-term "bullish" trend formed on Friday, January 6.

Investors are acting out a scenario with a further slowdown in the pace of interest rate increases by the US Federal Reserve, while representatives of the Bank of England and the European Central Bank (ECB) have previously announced their intention to continue tightening monetary policy. Huw Pill, chief economist at the British regulator, said that the United Kingdom is under more serious inflationary pressure than other developed countries (in November, the indicator was fixed at around 10.7%), so the policy of tightening monetary stimulus should continue, despite a significant adjustment in interest rates from 0.1% in December 2021 to 3.5% in 2022. According to him, the energy crisis, which was accompanied by an increase in the Unemployment Rate, became a catalyst for the increase in consumer prices. At the same time, it is reported that the government will reduce state support for enterprises to 5.5 billion pounds against the backdrop of a decrease in wholesale prices for natural gas to the levels of the beginning of last year. Nearly two-thirds of UK manufacturers fear power outages and job losses from the initiative, according to industry surveys, with 70.0% of corporations believing their spending on bills will rise substantially this year. Analysts are sure that the Bank of England will raise the interest rate to 4.5% by the summer in order to fight inflation and will keep it at this level until at least the spring of 2024.

The GBP/USD quotes are slightly supported by macroeconomic statistics from the United Kingdom, where Retail Sales from the British Retail Consortium (BRC) increased by 6.5% in December, accelerating from 4.1% recorded in November.

The focus of traders today will be the speech of US Federal Reserve Chairman Jerome Powell, as well as the publication of statistics on business optimism and economic sentiment in the US from IBD/TIPP. In turn, on Friday, the UK is expected to release November data on Gross Domestic Product (GDP), where in monthly terms it is projected to decline from 0.5% to -0.3%, as well as the publication of statistics on Industrial Production, which on a monthly basis can be adjusted from 0.2% to -0.3%, and on an annualized basis it may be adjusted from -2.4% to -3.0%, putting additional pressure on the position of the national currency.

Bollinger Bands in D1 chart demonstrate flat dynamics: the price range is slowly expanding, but still does not correspond to the observed dynamics in the market. MACD is growing preserving a weak buy signal (located above the signal line). The indicator is also trying to consolidate above the zero level. Stochastic shows more confident growth; however, it is quickly approaching its highs, indicating the risks of the British pound being overbought in the ultra-short term.

Resistance levels: 1.2240, 1.2311, 1.2400, 1.2500. | Support levels: 1.2150, 1.2084, 1.2000, 1.1900.

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