Steady Pound Faces Big Data Week

POUND STERLING ANALYSIS & TALKING POINTS

• Money markets may have overreacted to UK economic data last week, now pricing in 3 further rate hikes in 2023.
• All eyes on US data ahead of Fed rate decision.
• GBP/USD seeks fundamental catalyst to breakout of sideways move.

GBPUSD FUNDAMENTAL BACKDROP

The British pound remains resilient against the USD on Monday morning in what is scheduled to be a quiet week in terms of UK data. A quick recap last week revealed higher inflationary pressures, marginal improvements on retail sales and PMI numbers alongside tight labor market data. Markets reacted rather aggressively that led to a hawkish re-pricing of the Bank of England’s (BoE) interest rate probabilities (see table below), now including almost 3 additional rate hikes this year! While this is likely an overestimation, it looks clear that the BoE may not cut at all this year. Follow through from the already tight monetary policy may still filter through which is why I foresee less than 3 hikes for this year while adopting a more patient approach before hastily raising rates.

BANK OF ENGLAND INTEREST RATE PROBABILTIEIS

Source: Refinitiv

This week is the turn of the US as shown in the economic calendar below. A slew of high impact data that will contribute to the upcoming Fed rate decision next week. Fed guidance has been rather one sided and in favor of a higher for longer approach to quell inflation. That being said, the Fed blackout period has commenced so markets will not receive added insight until the May 4th (end of the blackout period), emphasizing upcoming data. Most data points are expected to portray a slowing US economy, leaving room for further pound strength should this come to fruition.

ECONOMIC CALENDAR

Source: DailyFX Economic Calendar

TECHNICAL ANALYSIS

GBP/USD DAILY CHART

Chart prepared by Warren Venketas, IG

Daily GBP/USD price action continues to exhibit indecisiveness within the short-term consolidatory pattern (green). With no major releases today, I anticipate minimal price movement on the pair sandwiched between the 1.2400 and 1.2500 psychological levels respectively.

Key resistance levels:

Key support levels:

BEARISH IG CLIENT SENTIMENT

IG Client Sentiment Data (IGCS) shows retail traders are currently net SHORT on GBP/USD with 57% of traders net short (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment but due to recent changes in long and short-positioning, we arrive at a short-term downside bias.

Contact and followWarrenon Twitter:@WVenketas