The British Pound‘s technical outlook is neutral with the UK currency likely to be relatively stable to marginally firmer over the coming weeks. And that means we need to look at the dynamics of other major currencies to see if there are any potentially attractive set-ups against Sterling. Two currencies spring to mind, the US dollar and the Euro.
Both the US Federal Reserve and the Bank of England have hiked rates over the last year, keeping the interest rate differential between the two currencies roughly equal. Going forward this may change with the Fed likely to pause before starting to cut rates later this year while the BoE may have another hike before they pause. While the rate differential between the two currencies may not widen dramatically, sentiment may underpin GBP/USD.
The daily GBP/USD chart shows how the pair has traded sideways over the past three months with cable currently eyeing the resistance at 1.2448. The moving average set-up is positive and should continue to underpin the move higher, while the recent series of higher lows indicate ongoing strength in the pair. If the pair breaks and opens above resistance at 1.2448, then a prior high at 1.2667 comes into play. Looking ahead, GBP/USD in Q2 may continue its sideways trade with a slight upside bias.
GBP/USD Daily Price Chart
While Sterling may push higher against the US dollar, it is likely to struggle against the Euro, again on rate differential expectations. The European Central Bank has been very vocal about the need to continue hiking interest rates over the next few months in its ongoing battle against inflation and this will lead to the interest rate differential against the British Pound widening, favoring the Euro.