GBP/USD Price Analysis – May 13, 2024
Daily Price Outlook
Despite the hawkish Fed's stance, the GBP/USD maintained its upward trend and remained well bid around the 1.2542 level, hitting the intra-day high of 1.2543. The reason for its upward trend could be attributed to the release of higher-than-expected UK Gross Domestic Product (GDP) figures on Friday. The stronger-than-expected economic growth of 0.6% in Q1 is likely boosting the GBP currency due to improved economic prospects and signals of recovery from the brief recession.
On the other side, the US dollar is losing its traction despite the Federal Reserve's hawkish stance and speculation about delaying easing plans. However, the US dollar lost momentum on the back of a downbeat release of the University of Michigan Consumer Sentiment Index. Hence, the bearish US dollar helped the GBP/USD pair to stay bid.
Impact of US Dollar Strength and Federal Reserve's Stance on GBP/USD Pair
On the UK front, the better-than-expected Gross Domestic Product (GDP) figures released last Friday boosted the GBP currency and contributed to the GBP/USD pair's gains. The UK economy grew by 0.6% in the first quarter of the year, beating predictions and signaling the end of a short recession. This growth was the strongest seen in over two years.
However, the British Pound faced some pressure after Huw Pill, Chief Economist at the Bank of England (BoE), hinted at potential interest rate cuts. Pill's remarks reflected the sentiment of most of the BoE's Monetary Policy Committee, who chose to keep interest rates steady at 5.25% last Thursday but now suggest that rate cuts might be on the horizon.
Looking ahead, investors are eagerly awaiting upcoming employment data from the UK, which is scheduled to be released on Tuesday. It is anticipated that the Claimant Count Change, which reflects the number of individuals claiming jobless benefits, will show an increase in April.
Besides, the ILO Unemployment Rate (3M), which provides a broader measure of unemployment, is expected to indicate a rise in the number of unemployed workers in the UK over the past three months.
Impact of US Dollar Strength and Federal Reserve's Stance on GBP/USD Pair
On the US front, the broad-based US dollar lost some of its strength and dropped after the University of Michigan Consumer Sentiment Index was released. It dropped to 67.4 in May from April's 77.2, which was lower than expected and marked a six-month low. This weaker sentiment led to a decline in the US dollar and contributed to the GBPUSD pair gains.
In contrast to this, the Federal Reserve's hawkish stance and hints of delaying rate cut plans have helped the US dollar limit its losses, possibly capping gains in the GBP/USD pair. While some Fed officials like San Francisco Fed President Daly advocate for continued restrictive policies to achieve inflation targets, others like Atlanta Fed President Bostic suggest potential rate cuts this year despite uncertainties.
Conversely, Dallas Fed President Logan warns of inflation risks and believes it's premature to cut rates, while Minneapolis Fed President Kashkari prefers a "wait-and-see" approach, indicating a high threshold for rate hikes to tackle inflation.
GBP/USD - Technical Analysis
Today, the GBP/USD pair exhibits marginal gains, trading at 1.25262, which is a slight uptick of 0.04%. This minimal increase reflects a cautious optimism in the market as traders assess the currency's next moves amid prevailing economic conditions.
For GBP/USD, the pivot point stands at 1.2598, which serves as the immediate threshold for any bullish advance. Should the pair push above this level, subsequent resistance points are located at 1.2567 and 1.2635.
Conversely, support levels are more distantly set at 1.2467 and 1.2387, with an additional safety net at 1.2301. These levels will play a crucial role should the pair experience a downturn.
The Relative Strength Index (RSI) currently stands at 52, indicating a relatively balanced market with neither overbought nor oversold conditions. The 50-day Exponential Moving Average (EMA) closely mirrors the current price at 1.2525, suggesting that the pair is trading within a stable range without significant bullish or bearish momentum.
Given the proximity of GBP/USD to its 50 EMA and the current RSI levels, the market is poised on a knife-edge, with potential for movement in either direction based on upcoming economic data and market sentiment.
Traders might consider a cautious approach, with a strategy to sell below 1.2598, targeting a take profit level at 1.2467, and setting a stop loss at 1.2698 to mitigate potential losses from unexpected market shifts.
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