Weaker dollar allows the pound to strengthen

28 November 2023 130
Weaker dollar allows the pound to strengthen

By the current moment, the GBPUSD currency pair has regained all of its losses from the fall. But the upward trend does not end here, as the continued weakness of the dollar allows the pound to strengthen even more. The local highs of late August near the level of 1.275 may be the next target for the buyers of the British currency. If fundamentals in the financial markets do not change significantly, GBPUSD quotes will still have a good chance to continue its growth.


On Monday, another interview with Governor of the Bank of England Andrew Bailey was published. The head of the British regulator focused on the reasons for lower inflation in recent months. According to him, the major factor in slowing price growth is now a comparison with last year's high levels, when energy costs reached multi-year peaks. However, by spring, the effect of this factor will be over, and inflation will not return to the target level of 2%.


According to the Bank of England's forecasts, the price growth rate will normalize only by the end of 2025. Because of this, the regulator cannot afford to reduce interest rates in the near future. The consensus forecast of market participants suggests the start of monetary policy easing in the UK next September, a few months later than the Fed and the ECB. Such expectations are in favor of the pound.


At the same time, the dollar exchange rate is under pressure from deteriorating economic statistics. Yesterday's data on the real estate market did not meet expectations, with only 679,000 houses sold in the US in October against the forecast of 721,000. Moreover, the figures for September were revised downward from 759,000 to 719,000. The decline in the number of transactions in the real estate market becomes another factor that puts pressure on the US currency.


Now the bulls can take a short break, after which GBPUSD quotes will return to the uptrend. As long as the price does not consolidate below 1.25, the main scenario continues to be a rise to the 1.275 level.


 

Consider the following trading strategy:


Buy GBPUSD at the current price. Take profit – 1.275. Stop loss – 1.25.


Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion

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

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