The GBPUSD currency pair saw a strong rebound from the year's lows at the end of Monday's trading session. However, the attempt to break above the 1.23 level has been met with fierce resistance from the bears, who are attempting to push the pair back towards the 1.22 level. This seems likely, especially given the circumstances of yesterday's pound against the dollar momentum. This move does not look sustainable and could turn downward at any time.
In his inauguration speech, new US President Donald Trump avoided any surprises by reiterating his previously announced plans to impose import tariffs. Tariffs of 25% could be imposed on Canada and Mexico from 1 February, with other countries to follow later. Investors reacted by massively selling the dollar, as the scenario of immediate tariffs did not materialise. However, pound buyers' optimism seems unjustified as the UK was not one of Trump's main targets.
Reuters analysts are turning their attention to Friday's retail sales data for December. The figure fell by 0.3% against expectations of a 0.4% rise, reflecting the continued poor state of the UK economy. If the PMI indices due for release on 24th January confirm the pessimistic view of UK GDP dynamics, the pound could return to its downward trend.
Mike Riddell of Fidelity International believes that even the current value of the British currency is too high. He expects the Bank of England to cut interest rates at least three times this year, something the Fed is unlikely to do. Bloomberg polls show that more than 50% of traders expect GBPUSD to fall to 1.15 by the end of June. However, more aggressive sellers have emerged in recent weeks with a target of 1.12.
The GBPUSD pullback after yesterday's rally could eventually lead to a test of 1.22 and a fresh attempt to consolidate below 1.21.
Consider the following trading strategy:
Selling GBPUSD at the current price. Take profit - 1.22. Stop loss - 1.237.
This content is for informational purposes only and is not intended to be investing advice.
