GBPUSD tested a resistance zone ranging below the 1.27 mark in the first half of May but bulls failed to push the pair above. A pullback was launched later on and the pair dropped over 2.5% over the past two weeks or so. However, it should be said that recent moves on the pair are driven primarily by USD, which is supported by rising yields amid debt ceiling uncertainty.
While GBPUSD has been pulling back this week, the outlook for the British pound became more bullish. This is because recent data releases from the United Kingdom signal that the Bank of England may turn more hawkish. Data released on Wednesday showed core CPI inflation accelerating to 6.8% YoY - the highest level since March 1992. Persistence of inflation led interest rate traders to boost their hawkish BoE bets. Money markets are now pricing in almost 110 basis points of cumulative BoE tightening by the end of this year, with the main rate seen rising to 5.50%! As recently as a week ago (May 19, 2023) money markets priced in less than 50 basis points of cumulative tightening by the end of the year with a rate peak slightly below 4.9%.
Start investing today or test a free demo
Open real account TRY DEMO Download mobile app Download mobile app
Market is pricing in much higher BoE rates today compared to a week ago. Spike in market pricing was triggered by a higher-than-expected CPI reading for April. Source: Bloomberg
GBPUSD
Taking a look at GBPUSD at D1 interval, we can see that the pair has broken below the 1.2375 support zone yesterday and an attempt to break back above it can be observed today. Should bulls fail and the pair once resumes downward move, the 1.2075 area will be on watch. This zone is marked with 200-session moving average (purple line), which halted declines in early-March, as well as the lower limit of the Overbalance structure. A break below would, at least in theory, hint a bearish price reversal and could hint that a deeper drop is looming.
Source: xStation5
GBPJPY
As we have already said in the opening paragraph, recent weakness in GBPUSD is driven by USD strengthening. However, if we look at other GBP-tied pairs, we can see that GBP has been holding quite firmly recently. Taking a look at GBPJPY chart at D1 interval, we can see that the pair managed to break above the 171.50 resistance zone and reached the highest level since early-2016.
Source: xStation5
The content of this report has been created by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, (KRS number 0000217580) and supervised by Polish Supervision Authority ( No. DDM-M-4021-57-1/2005). This material is a marketing communication within the meaning of Art. 24 (3) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II). Marketing communication is not an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC and Commission Delegated Regulation (EU) 2016/958 of 9 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the technical arrangements for objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflicts of interest or any other advice, including in the area of investment advisory, within the meaning of the Trading in Financial Instruments Act of 29 July 2005 (i.e. Journal of Laws 2019, item 875, as amended). The marketing communication is prepared with the highest diligence, objectivity, presents the facts known to the author on the date of preparation and is devoid of any evaluation elements. The marketing communication is prepared without considering the client’s needs, his individual financial situation and does not present any investment strategy in any way. The marketing communication does not constitute an offer of sale, offering, subscription, invitation to purchase, advertisement or promotion of any financial instruments. XTB S.A. is not liable for any client’s actions or omissions, in particular for the acquisition or disposal of financial instruments, undertaken on the basis of the information contained in this marketing communication. In the event that the marketing communication contains any information about any results regarding the financial instruments indicated therein, these do not constitute any guarantee or forecast regarding the future results.
