The GBPUSD currency pair, in accordance with last week's forecast, continues to move in an upward trend. The range of the May highs was successfully overcame, and today the level of 1.28 is already being actively tested. Against the market weakness of the dollar the pound strengthened significantly, which brought the technical indicators in the overbought zone for the first time since January. GBPUSD is likely to move towards the level of 1.3 after a slight correction or consolidation.
Jerome Powell and his colleagues had quite hawkish rhetoric at the last Fed meeting. However, market participants did not show much willingness to increase purchases of dollar assets. Perhaps the prospects for interest rate hikes at the meeting on July 26 seem too distant, especially when other central banks are not pausing in their monetary policy tightening cycles.
Yesterday the ECB raised rates by another 0.25%, and the Bank of England is expected to do the same next week. The labor market is still too tight and does not allow the British regulator to take a pause. Bank of England Governor Andrew Bailey stated to a parliamentary committee that it will take much longer to reduce inflation than it was previously expected. Currently, the labor market is the main reason for the rise in prices.
Wage statistics published this week reflect their annual growth rate of 6-7%. Obviously, it will be extremely difficult to reduce inflation to 2% in such conditions. Therefore, market participants have fundamentally revised their forecasts and now expect the Bank of England to increase its key rate to at least 5%. At the same time, expectations of a 6% peak rate emerged. There is little chance of such a scenario fully realizing, but even as a forecast, it will provide significant support for the pound exchange rate.
Last weeks rally happened without any serious correction, so right now it's a bit risky to expect the GBPUSD moving towards the level of 1.3. It is more reliable to wait for the price pullback to the level of 1.27 and to open a long position there.
The following trading strategy option can be suggested:
Buy GBPUSD at a decrease to 1.27. Take profit 1 – 1.29. Take profit 2 – 1.3. Stop loss – 1.263.
This content is for informational purposes only and is not intended to be investing advice.
