|

GBP/USD Forecast: Pound may propel higher if Powell gives green light after UK budget boost

  • GBP/USD has been resisting yield-driven dollar strength ahead of Fed Chair Powell's speech.
  • The well-received UK budget and Britain's vaccination campaign continue supporting sterling.
  • Thursday's four-hour chart is painting a mixed picture.

Sterling to sink? Not under Rishi Sunak – the UK Chancellor of the Exchequer has surprised markets by announcing a "super deduction" for firms that would encourage investment. While Britain's new budget consists of a sharp corporate tax hike in 2023 – from 19% to 25% – upbeat economic forecasts, extending the furlough scheme and other goodies seem to set the economy on a positive footing. 

The pound also continues benefiting from the UK's rapid rollout of vaccines, which are hovering near one-third of the population – the world leader among large countries. And now, the next moves depend solely on what happens in America.

GBP/USD has been able to resist dollar strength, as yields on US Treasuries remain elevated – uncomfortably close to the 1.50% on ten-year bonds, the global benchmark. Investors abandoned US debt as President Joe Biden continued pushing his covid relief program by agreeing on a compromise with moderate Democrats. The $1,400 stimulus checks will go to fewer Americans. While this implies fewer funds for the economy, the minor concession will likely ensure the bill's passage. 

Higher certainty of government spending is adverse for bonds and positive for the dollar – but what about weak data? Both ADP's labor statistics for the private sector and the ISM Services Purchasing Managers' Index fell short of expectations. The former showed an increase of only 117,000 private-sector jobs in February and the latter pointed to a slowdown in hiring in America's largest sector. The figures only partially weighed on the greenback.

The ball now lies in the court of Federal Reserve Chair Jerome Powell, who will make his last public appearance before the bank enters its pre-rate decision "blackout period." Will he change course and express concern over rising yields? So far, only Fed Governor Lael Brainard said that the move in bonds – that investors are obsessed about – "caught her eye."

Other officials shrugged it off as a normal and even desirable outcome. The Fed sees higher returns on long-term bonds as a healthy development reflecting better growth prospects. 

Powell may reiterate his previous calm message, echo Brainarad's subtle warning, or pledge to push yields lower – thus triggering a downfall for the dollar. 

See Powell Preview: Three scenarios for the Fed to defuse the bond bonfire, market implications

All in all, the pound is now in Powell's hands. 

GBP/USD Technical Analysis

Pound/dollar is battling the 100 Simple Moving Average no the four-hour chart while trading above the 200 SMA and below the 50 one, while momentum is virtually flat. All in all, a mixed picture. 

Support awaits at 1.3935, which cushioned the pair on Wednesday. It is followed by 1.3915, the daily low. Further down, 1.3890 and 1.3860 await GBP/USD. 

Resistance is at 1.3970, the daily high, followed by 1.40 – a psychologically significant barrier to the upside. The next lines to watch are 1.4025 and 1.4050. 

Where next for the dollar as the Fed refocuses, bonds bring action, jobs set to cause jitters

Author

Yohay Elam

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

More from Yohay Elam
Share:

Editor's Picks

AUD/USD sits at three-week highs above 0.7000 on hawkish RBA-speak

AUD/USD holds a positive bias for the fourth straight day, trading above 0.7000 in the Asian session on Wednesday and at three-week highs. RBA Deputy Governor Andrew Hauser's hawkish remarks and inflation concerns underpin the pair. However, the upside appears capped as the US Dollar attracts some buyers amid looming US-Iran uncertainty.

USD/JPY remains confined in a familiar range below 158.50

USD/JPY sees some dip-buying in the Asian session on Wednesday, though it remains confined within a multi-week range near 158.50 as the uncertainty over the timing of the next BoJ rate hike keeps Japanese Yen bulls on the defensive. Meanwhile, hawkish Fed expectations, bolstered by inflation risks stemming from volatile oil prices, underpin the US Dollar. However, looming intervention fears could limit JPY losses and cap the currency pair.

Gold Price Forecast: XAU/USD hits lows near $4,110 as yields, Oil pick up

Gold (XAU/USD) extends losses for the fourth consecutive day on Wednesday as a moderate pick up on US Treasury yields and higher Oil prices support a mild US Dollar (USD) recovery from Tuesday’s lows.

Bitcoin eyes a break above $85,000 as institutional demand returns

Bitcoin edges higher above $83,000, extending its rebound from the 50-day EMA near $80,786. US-listed BTC spot ETFs recorded over $23 million in net inflows on Tuesday, following Monday's $526 million, signaling a return of institutional demand.

What November 3 means for the Fed's rate path and the US Dollar

The USD faces a decisive period ahead of the November 3 midterm elections. While markets anticipate another interest rate increase from the Fed in December, the battle for control of Congress could reshape fiscal policy expectations and, indirectly, the path of US monetary policy in 2027.

The US Dollar fell. Gold didn't rally. That tells you everything
Gold (XAU/USD) is struggling to capitalize on a weaker US Dollar (USD), after repeatedly failing to establish itself above the $4,200 level. The precious metal remains confined to a relatively narrow trading range despite a combination of developments that would normally support higher prices.