British Pound Price Setup: GBP/USD, EUR/GBP, GBP/JPY

The British Pound’s rebound this month from fairly strong support keeps alive the possibility of further gains against the US dollar.

GBP/USD has been supported by last week’s interest rate hike by the Bank of England (BoE) and comforting remarks from BoE Governor Andrew Bailey on Tuesday regarding the resilience of the UK banking system. BoE hiked the Bank Rate by 25bps last week, in line with expectations given still-high inflation, but reiterated its data-dependent approach for further interest rate hikes. Moreover, Governor Bailey said on Tuesday that Britain was not experiencing stress linked to the collapse of Silicon Valley Bank and Credit Suisse.

GBP/USD Daily Chart

Moreover, UK data has surprised to the upside in recent weeks, with the Economic Surprise Index at its highest level since January. Money markets are now pricing in a high chance of one more BOE rate hike by May and don’t foresee any rate cuts at least until early 2024. In contrast, markets are pricing in a less than 50% chance of one more Fed rate hike in May, with two rate cuts priced in by the end of the year.

GBP/USD: Uptrend intact

GBP/USD has rebounded from a vital converged floor of around 1.1840, including the early-January low, the 200-day moving average, and the lower edge of the Ichimoku cloud support, negating the risk of a minor double top. See “British Pound Price Setup: GBP/USD Looks Fragile Ahead of US PCE Data”, published February 24.

GBP/USD Weekly Chart

Importantly, the sequence of higher-top-higher-bottom remains intact. Any break above the top end of the recent range at 1.2450, roughly coinciding with a slightly upward-sloping neckline from August would trigger a major reverse head & shoulders pattern (the left shoulder at the July low, the head at the September low, and the right shoulder at the 2023 low), potentially opening the door for significant gains in subsequent months.

EUR/GBP Daily Chart

EUR/GBP: Looking vulnerable

EUR/GBP’s failure to break past a horizontal trendline resistance at about 0.8900 confirms that the broader bias remains range to slightly down. Any break below immediate support on a horizontal trendline from early 2023 at about 0.8700, roughly around the 200-day moving average, could open the way toward the December low of 0.8545.

GBP/JPY Daily Chart

GBP/JPY: Holds above crucial support

GBP/JPY has been in a broad range in recent months, holding above strong support on a horizontal trendline from last year at about 155.50. Most recently, the cross has been guided higher within a slightly upward sloping channel from the start of 2023. The cross would need to clear the upper edge of the channel (now at 165.50) for the uptrend to resume.