GBP/USD PRICE & ANALYSIS
The British Pound climbed versus the US Dollar on Friday, thanks to more benign inflation figures from the world's largest economy and some unexpected domestic growth.
According to official statistics released on Thursday, price increases in the United States slowed for the sixth consecutive month in December. This has traders and investors more confident than ever that the majority of interest rate hikes are now behind them and that, while more are possible, the pace will reduce.
This viewpoint contrasts with that of many other developed countries, particularly those more vulnerable to price increases connected to the Ukraine conflict, such as the Eurozone. Rates are expected to climb further there, and the euro and sterling also surged following the US data.
GROWTH MANAGEMENT IN THE UK SURPRISE ON THE INSIDE
The pound had some rare domestic happiness Friday when it was revealed that its economy expanded by a whisker in November. Gross Domestic Product Growth was 0.1% while markets expected a 0.2% decrease. However, when manufacturing and industrial production fell short of expectations, the champagne may be safely placed on ice. The UK economy does not appear to be ready for considerably higher borrowing rates, and interest rate support for the sterling is likely to remain erratic as economic data becomes available.
Continued bad labor relations and the threat of recession, probably accompanied by some stagflation,' will keep the Pound a worried bullish bet. The Bank of England's next policy decision will not be made until February 2.
However, London-listed companies have gained with global rivals in anticipation that the US rate-hike cycle is coming to an end. On Friday, the blue-chip FTSE 100 index approached all-time highs. The extent to which this index constitutes a gamble on the UK economy is controversial, considering the amount of significant multinational brands that comprise it.
all-time highs. The extent to which this index constitutes a gamble on the UK economy is controversial, considering the amount of significant multinational brands that comprise it.
TECHNICAL ANALYSIS OF THE GBP/USD
The daily chart shows that, even though GBP/USD dropped decisively below its previously-dominant uptrend channel on December 15, the bulls kept a considerable degree of influence.
Sterling's fortunes have improved since that day, with an increase this week. While GBP/USD is now supported, the pound appears to be a bit stretched at current levels, and some consolidation may be required before it can push meaningfully higher and reclaim those mid-December heights.
For the time being, support appears to be in a zone between the psychological 1.2000 level and 1.2120. Between December 22 and January 3, the market moved tightly inside this band. The pound's ability to maintain above or within this range as the weekends might be a key indicator for any near-term aim at its recent highs.
According to IG's client sentiment index, the market is now net short of GBP/USD, albeit by a small margin, with respondents reporting a 53%/47% split.