GBP/USD Price Analysis – Feb 21, 2024

Daily Price Outlook

The GBP/USD currency pair has been showing a strong upward trend and maintaining bullish momentum, hovering around the 1.2637 level. However, the upward rally in the pair was bolstered by the Bank of England Governor's optimistic view on the UK economy. This provides a positive boost for the British Pound (GBP) as the optimism leads to increased demand for the GBP, which results in upward movement for the GBP/USD currency pair.

Furthermore, the reason for the pair's upside momentum can also be attributed to the bearish US dollar, which lost its traction in the wake of the dovish stance of the Federal Reserve. It should be noted that the markets expecting the first rate cuts from the Fed between May and June, which could be seen as negative for the US dollar, as it suggests the potential weakening of the currency due to anticipated lower interest rates.

Impact of UK Economic Recovery and Interest Rate Expectations on GBP/USD Pair

On the UK front, Bank of England Governor Andrew Bailey says the economy is rebounding from a mild recession. Despite current inflation standing at 4%, he expects interest rates to fall later this year. Bailey believes the recession, marked by only a 0.5% GDP drop, is less severe compared to past ones. However, the Bank forecasts a temporary dip in inflation to 2% before it rises again. Investors are predicting rate cuts to begin in either June or August. Bailey emphasizes the need for restrictive interest rates to effectively tackle inflation, hinting at future cuts. Deputy Governor Ben Broadbent also supports the likelihood of rate cuts in the coming months.

Hence, this was seen positive for the GBP/USD pair as the expectations of interest rate cuts and signs of economic recovery in the UK can boost demand for the British Pound, potentially leading to upward movement in the GBP/USD currency pair.

Impact of US Inflation Data and FOMC Minutes on GBP/USD Pair

On the US front, investors are less certain about Federal Reserve interest rate cuts after recent high inflation indicated by January's Producer Price Index. Markets now predict rate cuts between May and June. However, the upcoming Federal Reserve Open Market Committee's meeting minutes might offer clues about future rate moves. Therefore, this was seen as negative news for the US dollar and may impact the GBP/USD pair as the uncertainty about rate cuts amid high inflation could weaken the US dollar. However, if the Fed indicates a dovish stance in the meeting minutes, it may provide some support for the GBP/USD pair.

On the other side, the US dollar decline could be short-lived as the ongoing tension in the Middle East creates uncertainty in the market, which will help the safe-haven US dollar to limit its losses.

Looking forward, traders are cautious ahead of Wednesday's FOMC Minutes, which could explain why the Fed is hesitant about easing policy. Meanwhile, the upcoming release of the US S&P Global PMI for February will also influence the GBP/USD pair, potentially providing clarity on its direction.

GBP/USD - Technical Analysis

The British Pound (GBP) against the US Dollar (USD) witnessed a slight uplift on February 21st, ascending to 1.26358, a 0.11% increase from the previous day. This minor uptick underscores a cautious yet optimistic sentiment among traders, as the currency pair navigates through the complexities of global economic cues and monetary policy expectations from both the Bank of England and the Federal Reserve.

The GBP/USD currency pair finds its pivot point at 1.2611, setting the stage for potential price movement directions. Resistance levels are strategically placed at 1.2685, 1.2770, and 1.2841, each marking critical thresholds that could cap upward movements. Conversely, support levels at 1.2529, 1.2455, and 1.2370 offer floors where buying interest may resurface, providing a buffer against downward pressures.

The Relative Strength Index (RSI) at 58 indicates a moderately bullish sentiment, suggesting the pair is neither overbought nor oversold but leans towards a stronger momentum. The Moving Average Convergence Divergence (MACD), with a value of 0.00092 above the signal line of 0.00044, further bolsters the bullish outlook, hinting at an emerging upward trend. The 50-day Exponential Moving Average (EMA) stands at 1.2620, closely aligning with the current price, and reinforcing the notion of a sustained bullish bias in the near term.

Analyzing the amalgamation of technical indicators and key price levels, the GBP/USD pair exhibits a cautiously bullish trend. Traders might consider a strategic entry above 1.26189, targeting profits at 1.26724, while employing a stop loss at 1.25778 to manage risk effectively. This trading approach capitalizes on the current market dynamics, aiming to exploit the upward trajectory while guarding against unexpected volatility.