Pound Dips Amidst GDP Release, BoE Ambiguity on Rate Cuts

The pound declined against the U.S. dollar following the release of GDP figures, prompting investors to increase their bets on a potential interest rate cut in June, even though a full rate cut isn't anticipated until August.

The Bank of England is expected to maintain ambiguity regarding the timing of interest rate cuts in its upcoming meeting, awaiting clearer signals indicating the suppression of inflationary pressures in the economy. Governor Andrew Bailey's recent remarks conveyed cautious optimism, suggesting that inflation expectations remain manageable and concerns about a price-wage spiral are diminishing. However, Bailey exhibited no immediate urgency to lower the Bank Rate from its 16-year high, citing uncertainties in labor market data and geopolitical risks.

While the BoE forecasts a slowdown in price growth to reach its 2% target in the second quarter, it anticipates a subsequent increase to nearly 3% later in 2024. The Bank remains apprehensive about rapidly growing wages, particularly as minimum wages and other pay settlements continue to rise, posing risks to inflationary pressures.

With the economy showing signs of emerging from a brief recession, recent tax cuts announced by Finance Minister Jeremy Hunt aim to provide moderate stimulus to consumers, potentially influencing economic dynamics ahead of an expected election in 2024.

Although the economy demonstrated growth in January following a shallow recession in the latter half of 2023, it remains uncertain whether the economy has fully recovered, given the technical definition of recession met in previous quarters.

Britain's economic performance has been sluggish, influenced by factors such as energy cost spikes due to geopolitical tensions and the impact of high Bank of England interest rates. Despite this, declining inflation suggests easing pressure on household spending, prompting discussions about potential rate cuts.

While public inflation expectations have softened, housing market uncertainty persists due to ambiguity over interest rate trends.

Looking ahead, the BoE's rate decision is awaited amidst expectations of continued high borrowing costs until August, contrasting with anticipated rate cuts by the ECB and the Fed. Economic indicators, particularly inflation readings, could influence last-minute adjustments in market expectations.

The dollar remained relatively stable against a range of currencies, while U.S. Treasury yields showed mixed movements. Data indicated a solid rebound in the U.S. manufacturing sector, with output increasing in February, following a downwardly revised decline in the previous month. Despite this positive trend, concerns linger over the impact of high interest rates on manufacturing, which has faced significant challenges since March 2022 due to multiple interest rate hikes by the Federal Reserve.

Consumer sentiment and inflation expectations in the U.S. remained largely unchanged in March, though traders adjusted their bets on future rate cuts following hotter-than-expected producer and consumer price data. While the market now anticipates a reduced likelihood of rate cuts, attention turns to the upcoming Federal Reserve meeting for insights into the central bank's stance on rate adjustments, the economy's resilience, and the trajectory of inflation. Federal Reserve Chair Jerome Powell has expressed cautious optimism about inflation trends, emphasizing the need for further evidence before considering easing monetary policy. Hence, it is anticipated that this could influence the value of the US dollar, resulting in some minor pressure persisting during this period. This might lead to fluctuations within a narrow range, influenced by the yield rates of the two economies, which are relatively similar.

Data for Technical Analysis (5H) CFD GBP/USD

Resistance : 1.2736, 1.2739, 1.2742

Support : 1.2730, 1.2727, 1.2724

5H Outlook    

Source: Investing.com

Buy/Long 1 If the support at the price range 1.2720 - 1.2730 is touched, but the support at 1.2730 cannot be broken, the TP may be set around 1.2737 and the SL around 1.2715, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.2736 - 1.2746, TP may be set around 1.2755 and SL around 1.2725, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.2736 - 1.2746 is touched, but the resistance 1.2736 cannot be broken, the TP may be set around 1.2728 and the SL around 1.2751, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.2720 - 1.2730, TP may be set around 1.2710 and SL around 1.2741, or up to the risk appetite.       

Pivot Points Mar 18, 2024 03:28AM GMT