British Pound Weekly Outlook

GBP/USD Projection: Bearish

Despite mixed economic data in the UK, the Pound remains relatively strong. Anticipation of interest rate movements favors the Fed over the Bank of England. With minimal data scheduled for the upcoming week, attention will be on central bank communications.

The Pound faced challenges amid varied economic indicators in the past week, grappling with the implications of mixed domestic data. With few economic releases in the upcoming days, Sterling is poised to navigate the aftermath of recent readings while monitoring the performance of the US Dollar.

Surprisingly, news of the UK slipping into a technical recession in the final quarter of 2023 resulted in both the Pound and London blue-chip stocks ticking higher. Investors questioned the sustainability of maintaining interest rates at sixteen-year highs given the economic backdrop.

Conversely, a robust rebound in domestic retail sales in January had minimal impact on Sterling, possibly due to the preceding month’s poor performance or the cautious stance of investors assessing whether the strong start in 2024 is a blip or the onset of a trend. If the latter holds true, it could signal a brief recession, as some economists have suggested.

The upcoming week offers scant economic releases for UK observers, with the Gfk snapshot of consumer confidence being the highlight. Its significance may be heightened as markets eagerly seek clues about the resilience of sales.

On the US Dollar front, attention will turn to the Federal Open Market Committee’s policy meeting minutes. Despite potential insights, they may be overshadowed by more recent events and are unlikely to alter the prevailing market expectation of forthcoming rate cuts in the United States by mid-year.

Overall, the week is likely to be dictated by the US Dollar’s influence on GBP/USD, favoring a bearish outlook given the pair’s current downward trend, albeit from elevated levels.

Taking a longer-term perspective from the daily chart, an intriguing development is unfolding. The broad sideways trading range established since late November, between 1.28137 and Fibonacci support at 1.24908, is nearing the uptrend established from the lows of September 2022.

While support remains somewhat below the market at 1.24397, attention is drawn to the trendline in the coming week. The range base at 1.24908 appears pivotal for Sterling bulls, having been successfully defended this year. However, it faces increased pressure following a recent gap lower. Notably, the sharp daily declines on February 2 and 3 have yet to be recovered.

Additionally, the market approaches a downtrend line from the highs of July 12, providing resistance at 1.27424 for Sterling bulls. The Relative Strength Index for GBP/USD appears neutral just below the 40 level but has been on a downward trend since November, signaling a market comfortable at current levels but leaning towards overselling.