GBP/USD Price Analysis – March 06, 2024

Daily Price Outlook

The GBP/USD currency pair has maintained its previous day winning streak and hit the intra-day high of $1.2709. The upward movement was supported by expectations that UK Chancellor Jeremy Hunt would reduce national insurance contributions. This reduction will likely stimulate economic activity by increasing disposable income, potentially leading to higher consumer spending and business investment, which in turn could strengthen the GBP currency. Besides this, the upward momentum can also be attributed to the weakening US Dollar, which has been affected by the dovish stance of the Federal Reserve and recent negative US economic data.

UK Chancellor Rishi Sunak's Potential Announcement on National Insurance Contributions

In the UK, Chancellor Rishi Sunak is scheduled to unveil the government's financial plan, known as the Budget Report, before the general election. This report outlines the UK's tax and spending strategies. However, the speculation suggests that Sunak might announce a reduction in national insurance contributions for employees. These contributions are similar to taxes in that they are mandatory payments made by both employees and employers to the government, specifically allocated to fund services such as healthcare, pensions, and other social security benefits.

However, the speculation revolves around a previous announcement indicating a potential reduction of 2 pence in national insurance contributions per pound. This reduction could affect the amount of money employees take home from their paychecks, possibly providing them with some financial relief. However, the exact details of the plan are still unclear, and any changes would require approval from Parliament.

Therefore, the reduction in national insurance contributions could be positive for the GBP currency, as it may boost consumer spending and economic growth, potentially strengthening the currency.

US Dollar Continues Bearish Trend Amid Disappointing Data and Dovish Fed Sentiment

On the US front, the broad-based US Dollar remained bearish and continuously lost ground due to disappointing US macro data and dovish comments from Federal Reserve (Fed) officials. On the data front, the Institute for Supply Management (ISM) reported that economic activity in the services sector continued to grow in February, marking the 14th consecutive month of expansion. However, this growth occurred at a slower pace compared to previous months, primarily due to a decrease in employment within the sector.

Meanwhile, the data from the US Commerce Department's Census Bureau revealed that total factory orders experienced a decline of 3.6% on a month-on-month basis in January. On a year-on-year basis, factory orders were down by 2.0%. This comes after a slight decline of 0.3% in the previous month. These figures suggest a weakening in demand for manufactured goods, which could have implications for overall economic growth and productivity.

On the other side, the ISM Services PMI dropped to 52.6 in February, lower than the expected 53.0, indicating slower growth. Factory Orders (MoM) also fell by 3.6% in January, surpassing the predicted 2.9% decline. Steven Friedman, a former New York Fed economist, suggested that the Federal Reserve might be cautious about cutting interest rates in 2024 due to economic growth and volatile inflation. He hinted that there might be fewer rate cuts than the three initially anticipated for the year.

Hence, the GBP/USD pair could see upward pressure as the bearish US Dollar reacts to disappointing economic data and cautious Fed sentiment, potentially boosting the British Pound against the US Dollar.

Moving ahead, traders are cautious ahead of Fed Chair Jerome Powell's congressional testimony. Investros will also keep thier eyes on the release of the US ADP report on private-sector employment and JOLTS Job Openings data on Wednesday, ahead of Friday's Nonfarm Payrolls report.

GBP/USD - Technical Analysis

On March 6, the GBP/USD pair experienced a slight decline, down by 0.04%, closing at 1.2700. This minor adjustment in price presents an opportunity to delve into the currency pair's technical landscape, offering insights into potential future movements. The pair's current position near key technical levels indicates a delicate balance between bullish and bearish sentiments.

The pivot point at 1.2652 serves as a critical juncture for GBP/USD, with immediate resistance observed at 1.2703. Further resistance levels at 1.2753 and 1.2804 delineate potential hurdles that the currency pair might face if it embarks on an upward trajectory. Conversely, support levels at 1.2602, 1.2551, and 1.2505 outline zones where the pair could find footing in case of a downturn, offering traders key levels to monitor.

Technical indicators reveal a nuanced picture. The Relative Strength Index (RSI) stands at 60, suggesting a moderately bullish momentum without venturing into overbought territory. The Moving Average Convergence Divergence (MACD) shows a value of 0.0003 against a signal of 0.0012, indicating a potential for upward momentum as the MACD line hovers near the signal line. Additionally, the 50-day Exponential Moving Average (EMA) at 1.2693 closely aligns with the current price, reinforcing the significance of this level as a pivotal point for the GBP/USD pair.

Given these observations, the technical outlook for GBP/USD leans slightly bullish, with a recommended trading strategy to buy above 1.26816. Setting a take profit at 1.27324 and a stop loss at 1.26613 can capitalize on the expected upward movement while managing risk effectively.