GBP/USD Weekly Forecast: Bulls set to take out the critical 1.2450 barrier

The Pound Sterling extended its winning momentum into the second week against the United States Dollar (USD). Investors brushed aside global banking sector tensions as the central banks' decisions led the way. The GBP/USD pair briefly recaptured the 1.2300 level, having found strong support at 1.2000 a fortnight ago. The next direction in Cable will depend on the incoming economic data and monetary policy expectations on both sides of the Atlantic as well as risk sentiment.

GBP/USD: What happened last week?

It was a blockbuster week for GBP/USD, as bulls gained almost one big figure amid narrowing monetary policy divergence between the US Federal Reserve (Fed) and the Bank of England (BoE). Risk recovery was the key underlying theme this week, with investors repositioning ahead of the critical central banking policy announcements. Fears ebbed over the global banking crisis after the US and European regulators rescued the troubled banks, bringing back appetite for riskier assets like stocks and the Pound Sterling while boding ill for the safe-haven United States Dollar (USD).

The US Dollar extended its downtrend and hit its lowest level in seven weeks against its major rivals in the aftermath of a dovish Federal Reserve policy outcome. The United States central bank delivered the expected 25 basis points (bps) rate hike on Wednesday. In its policy statement, the Federal Reserve dropped language about "ongoing increases" being needed in favor of "some additional" rises that could be appropriate as they assessed the impact of the banking sector crisis on the economy. Powell's cautious remarks also corroborated with the dovish outlook and triggered a sharp sell-off in the US Treasury bond yields across the curve, eventually smashing the US Dollar. The two-year Treasury yields dived 22 bps and breached the 4.0% level while the benchmark 10-year rates surrendered the 3.50% figure. Markets began pricing a minor rate cut by the end of this year, according to the CME Group's FedWatch Tool.

In contrast, the Bank of England (BoE) also raised rates by 25 bps to 4.25%, as widely expected, but left doors open to further tightening in the event of rising inflationary pressures. Britain's annualized Consumer Prices Index (CPI) jumped to 10.4% in February vs. January's 10.1% increase while missing estimates of a 9.8% clip. Meanwhile, the Core CPI gauge (excluding volatile food and energy items) increased to 6.2% YoY last month versus 5.8% seen in January.

The BoE announcement was perceived as surprisingly hawkish after the vote split showed seven BoE board members voting in favor of a rate hike, compared with six members favoring a rate increase at this meeting. In a speech following the meeting, Bank of England Governor Andrew Bailey sounded optimistic about the economic, inflation and banking sector outlook, which helped the British Pound sustain the post-BoE decision-led upside to seven-week highs at 1.2343.

The British Pound was also buoyed by the renewed Brexit optimism after UK Prime Minister, Rishi Sunak, succeeded in getting the Brexit bill passed through the House of Commons, despite major criticism from Tory rebels. Additionally, the potential signing of the Brexit deal over the Northern Ireland Protocol (NIP) underpinned the sentiment around the GBP/USD pair.

The US Dollar attempted a tepid recovery on the final trading day of the week, keeping Pound Sterling bulls on the back seat. Cable failed to capitalize on the upbeat UK Retail Sales data, which jumped by 1.2% over the month in February vs. 0.2% expected and 0.9% previous. The Core Retail Sales, stripping the auto motor fuel sales, rose by 1.5% MoM vs. 0.1% expected and 0.9% previous. Meanwhile, The UK's Preliminary S&P Global/CIPS Manufacturing Purchasing Managers' Index (PMI) contracted further to 48.0 in March versus 49.8 expected, while Preliminary UK Services Business Activity Index for March dropped to 52.8 as against February's 53.5 final print and 53.0 expected. Disappointing UK data also weighed on the major amid a risk-off market mood.

Finally, S&P Global Composite PMI in the US improved to 53.3 in early March, revealing an acceleration in the private sector's activity growth. The USD managed to hold its ground after this data and didn't allow GBP/USD to stage a decisive rebound ahead of the weekend.

A relatively calmer week: Bailey and US PCE Index eyed

With the highly-anticipated US Federal Reserve and Bank of England policy announcements out of the way, markets are bracing for a relatively calmer week. Even though the week is not that intense, data-wise, BoE Governor Andrew Bailey's dual appearance is going to make it an interesting one.

On Monday, Bailey is due to speak at the London School of Economics, while on Tuesday, he will testify about the collapse of Silicon Valley Bank (SVB) before the Treasury Committee in London. Bailey's words will help reprice expectations on the BoE's future policy course.

Meanwhile, the United States will feature the Conference Board Consumer Confidence data on Tuesday. The US data is unlikely to have a significant market impact just after the Fed week.
The BoE Financial Policy Committee's (FPC) meeting and its Minutes will entertain the Pound Sterling traders on Wednesday. Also, comments from the BoE policymaker Catherin Mann will be closely followed. From the US docket, the Pending Home Sales data will stand out midweek.

Thursday is data-quiet on the UK calendar, while from the US, the weekly Jobless Claims and Final GDP estimate will be published. On the final trading day of the week, China's official Manufacturing and Non-Manufacturing PMI could stir the markets if it suggests that the economic recovery prospects for the Chinese reopening are fizzling out.

The UK final Gross Domestic Product (GDP) revision for the fourth quarter will be reported on Friday, followed by the Federal Reserve's preferred inflation measure, the Core Personal Consumption Expenditures - Price Index, due on the cards later on Friday. The revised University of Michigan (UoM) Consumer Sentiment data from the United States will wrap up a light week.

Apart from the economic events, investors will continue to pay close attention to the developments surrounding the recent global banking sector crisis. Additionally, speeches by the Federal Reserve policymakers will be back on the traders' radar after the pre-Fed' blackout period.'

GBP/USD: Technical outlook

GBP/USD's daily technical setup continues to back the ongoing bullish momentum, pointing to the additional upside, as the 14-day Relative Strength Index (RSI) holds firmer above the midline.

The pair finds immediate significant resistances at the multi-week high of 1.2343. A sustained break above will put the static resistance at 1.2400 under threat.

If the Pound Sterling bulls manage to scale the latter, then the critical upside barrier just shy of 1.2450 will come into play. That supply zone is the confluence of the January 23 high and the December 14 2022 top.

Recapturing the latter will trigger a big technical breakout, initiating a fresh uptrend toward the 1.2600 round figure and beyond.

On the downside, further retracement could challenge the flattish 50-Daily Moving Average (DMA) at 1.2148 once again. Daily candlestick closing below the latter will fuel a fresh downswing toward the strong support near 1.2085, which is the intersection of the 21 and 100 DMAs.

The next support awaits at the 1.2050 psychological level and the March 15 low of 1.2010. A bearish reversal could be confirmed if GBP sellers find acceptance below that cap. 

GBP/USD: Daily chart

GBP/USD: Forecast poll

The FXStreet Forecast Poll paints a mixed picture in the near term, with the one-week average target sitting not too far away from Friday's trading levels. One-month and one-quarter outlooks don't point to a clear bias either.