The GBPUSD currency pair continues to move within the medium-term uptrend, as expected. Last week, the bears tested the trend line for resistance, but the strong rebound confirmed the pound’s dominance over the dollar. The news background indicates a high probability of further GBPUSD growth, with no technical technical barriers in sight. The next bullish target is 1.38.
Currency market participants are getting increasingly pessimistic about the dollar's prospects, partly due to Donald Trump's recent comments. The US president first criticized Fed Chair Jerome Powell for setting interest rates too high, and then hinted at replacing him with a dovish candidate. Societe Generale strategists warn that such a move could accelerate the dollar’s decline.
Central banks' interest in the dollar is also dropping. A new study by the Official Monetary and Financial Institutions Forum (OMFIF) showed that 70% of central banks believe that the current US administration's actions are undermining the dollar's position. A year ago, only half as many regulators shared this view. The decline in dollar demand was particularly noticeable during the recent escalation of Middle East tensions. The US currency rose by less than 2% and then hit a three-year low.
Meanwhile, the Bank of England continues to fight high inflation. In yesterday's speech, the central bank's head Andrew Bailey advocated keeping the key rate at the current level of 4.25%. He projects that the price growth rate will accelerate from 3.4% in May to 3.7% by September, and then slow down to 3.5% at the year-end. High inflation expectations among the British population prevent a significant monetary easing at this point, supporting the pound's attractiveness.
The RSI has moved away from the overbought zone due to last week's correction in GBPUSD and still does not indicate an imminent downward trend reversal. The nearest target for the bulls is now 1.38.
Consider the following trading strategy:
Buy GBPUSD at the current price. Take profit — 1.38. Stop loss — 1.36.
This content is for informational purposes only and is not intended to be investing advice.
