GBP may form an uptrend

09 August 2023 149
GBP may form an uptrend

The GBP/USD currency pair has been in a downtrend for about a month. Fundamental data suggests a possible change of a trend. The Bank of England has not completed the monetary policy tightening cycle. The Fed has probably ended the rate hike cycle. Consequently, the difference between the policies of the two countries' central banks will widen, which could lead to a rise in the British pound.

Inflation remains the main threat to the UK, unlike in the US. Huw Pill, the Bank of England's chief economist, has warned that UK supermarket prices may never fall from their current high levels. Many households are still suffering from inflation well above the Bank of England's 2% target, even as price rises have eased.

Officials said last week that further policy tightening would be needed if there was evidence of persistent inflation.

Pill said most of the rate hikes the Bank of England has made since 2021 have yet to hit the economy. That said, there are risks that borrowing levels have already become too high. Nevertheless, the Bank of England may have to raise rates again in the future.

The signals of further tightening of monetary policy provide support to the GBP.

The situation with inflation in the US is much better. It has been below the key rate for several months now.

On Thursday, the US consumer price index data will be published. It’s worth noting that last month the inflation rate was below market expectations. This fact surprised investors and caused them to revise expectations on the interest rate. Now they expect that the Fed will ease its monetary policy, which could weaken the US dollar index.

If Thursday's consumer price growth continues to slow down, it will be a positive signal for the market. In this scenario, the US dollar may weaken.

According to the technical analysis, the GBP/USD currency pair is trying to break out of the current downtrend. In case the movement is confirmed, there could be a sharp upward price impulse.

The growth target will be the level of 1.284. That’s the level of June’s high. A Stop-loss should be placed below the low of today's candlestick, which corresponds to the price of 1.272.

Growth of the GBPUSD currency pair:

Take profit — 1.284

Stop-loss — 1.272

This content is for informational purposes only and is not intended to be investing advice.

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