GBP/USD Forecast: Why BOE bullishness is insufficient to stop the dollar
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UPGRADE- GBP/USD has been benefiting from hints of a BOE rate hike.
- Data-driven dollar strength and end-of-month flows may tilt the balance toward the dollar.
- Friday's four-hour chart is showing bulls have an advantage.
Banking on the Bank of England's bullishness? That might have to wait for after the long weekend as the dollar has fresh reasons to rise.
According to the New York Times, US President Joe Biden will unveil a large $6 trillion budget – on top of his ambitious infrastructure plans. The news sent investors away from US debt, lifting Treasury yields and making the dollar more attractive.
Thursday's data releases also supported the greenback. Weekly jobless claims hit a new pandemic low of 406,000 and Non-defense ex-air Durable Goods Orders – the core of the core – surged by 2.3%, reflecting strong investment in April.
US Durable Goods Orders in April show strong underlying expansion
The focus on Friday is on the Federal Reserve's preferred gauge of inflation – the Core Personal Consumption Expenditure (Core PCE) which is set to jump above 2% yearly. The economic calendar is pointing to an increase of 2.4%, and any beat could raise expectations of a rate hike from the Fed.
US PCE inflation preview: Gold remains key asset to watch
Another reason to expect an upward move in the greenback comes from the date – as Monday is a holiday in both the US and the UK, money managers will likely scramble to adjust their portfolios and perhaps undo some of the dollar's losses during the month.
How is the pound positioned? As mentioned earlier, sterling benefited from rising expectations for a rate hike in the UK. Gertjan Vlieghe, a member of the Bank of England, signaled that the "Old Lady" could raise borrowing costs in early 2022. That is ahead of market expectations.
On the other hand, doubts about the next stage of the UK reopening are growing. The spread of the B.1.167.2 variant – the one first identified in India – is raising concerns despite the relatively low numbers and Britain's vaccination campaign. Prime Minister Boris Johnson expressed confidence on Thursday, but Health Minister Matt Hancock – fighting for his reputation after blistering evidence from Dominic Cummings – sounded more cautious.
All in all, fundamentals point to cable paring some of its gains.
GBP/USD Technical Analysis
Pound/dollar continues benefiting from upside momentum on the four-hour chart and has recaptured the 50 Simple Moving Average – both bullish developments.
Resistance awaits at 1.4210, the daily high, followed by 1.4230, a high point that was seen late last week. Further above, 1.4240, the yearly high, awaits GBP/USD.
Support is at the daily low of 1.4175, followed by 1.4135,l , which provided some support last week. Further down, 1.4090 and 1.4075 are eyed.
- GBP/USD has been benefiting from hints of a BOE rate hike.
- Data-driven dollar strength and end-of-month flows may tilt the balance toward the dollar.
- Friday's four-hour chart is showing bulls have an advantage.
Banking on the Bank of England's bullishness? That might have to wait for after the long weekend as the dollar has fresh reasons to rise.
According to the New York Times, US President Joe Biden will unveil a large $6 trillion budget – on top of his ambitious infrastructure plans. The news sent investors away from US debt, lifting Treasury yields and making the dollar more attractive.
Thursday's data releases also supported the greenback. Weekly jobless claims hit a new pandemic low of 406,000 and Non-defense ex-air Durable Goods Orders – the core of the core – surged by 2.3%, reflecting strong investment in April.
US Durable Goods Orders in April show strong underlying expansion
The focus on Friday is on the Federal Reserve's preferred gauge of inflation – the Core Personal Consumption Expenditure (Core PCE) which is set to jump above 2% yearly. The economic calendar is pointing to an increase of 2.4%, and any beat could raise expectations of a rate hike from the Fed.
US PCE inflation preview: Gold remains key asset to watch
Another reason to expect an upward move in the greenback comes from the date – as Monday is a holiday in both the US and the UK, money managers will likely scramble to adjust their portfolios and perhaps undo some of the dollar's losses during the month.
How is the pound positioned? As mentioned earlier, sterling benefited from rising expectations for a rate hike in the UK. Gertjan Vlieghe, a member of the Bank of England, signaled that the "Old Lady" could raise borrowing costs in early 2022. That is ahead of market expectations.
On the other hand, doubts about the next stage of the UK reopening are growing. The spread of the B.1.167.2 variant – the one first identified in India – is raising concerns despite the relatively low numbers and Britain's vaccination campaign. Prime Minister Boris Johnson expressed confidence on Thursday, but Health Minister Matt Hancock – fighting for his reputation after blistering evidence from Dominic Cummings – sounded more cautious.
All in all, fundamentals point to cable paring some of its gains.
GBP/USD Technical Analysis
Pound/dollar continues benefiting from upside momentum on the four-hour chart and has recaptured the 50 Simple Moving Average – both bullish developments.
Resistance awaits at 1.4210, the daily high, followed by 1.4230, a high point that was seen late last week. Further above, 1.4240, the yearly high, awaits GBP/USD.
Support is at the daily low of 1.4175, followed by 1.4135,l , which provided some support last week. Further down, 1.4090 and 1.4075 are eyed.
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