GBP/USD Price Forecast: Pound Fixated on US Factors

GBPUSD FUNDAMENTAL BACKDROP

The British pound carved out some marginal gains this Monday morning after positivity around the US debt ceiling emerged. There has been a tentative meeting scheduled for tomorrow with participants including President Joe Biden and House Speaker Kevin McCarthy to negotiate around avoiding a default. The President commented further stating that he believes a deal could be reached stoking risk sentiment with investors now marginally moving away from the safe haven USD. That being said, until markets receive more clarity around the situation, the greenback will remain the preferred currency against the pound.

Last week’s Bank of England (BoE) meeting expectedly raised interest rates by 25bps but money market pricing (see table below) showed a stark downward revision of upcoming rate hikes to a roughly 40bps from 70bps peak pre-announcement. The 40bps current view may be overenthusiastic as recessionary fears gain traction as well as the BoE’s inflation forecast suggesting lower inflation in the UK even at current rates. The aggressive monetary policy stance thus far should be sufficiently restrictive for the UK economy as signs of economic slowdown are starting to appear.

BANK OF ENGLAND INTEREST RATE PROBABILITIES

Source: Refinitiv

Fed speakers will dominate the calendar today following on from officials last week who were less hawkish relative to prior commentary. Talks of data dependency and bank stress were mentioned but overall the preference remained restrictive. Fed speakers today (see below) could stoke some volatility for cable in what is a comparatively quiet day from an economic perspective.

ECONOMIC CALENDAR

Source: DailyFX Economic Calendar

TECHNICAL ANALYSIS

GBP/USD DAILY CHART

Chart prepared by Warren Venketas, IG

Daily GBP/USD price action saw the 1.2500 handle (now resistance) being breached with 1.2400 not far off. The Relative Strength Index (RSI) fell to cautious levels favoring neither bullish nor bearish momentum short-term – this reflects the uncertain external environment influencing the pair.