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GBP/USD analysis: Factors influencing the potential rise of the pound, January 16, 2024

gbpusd analysis forex

The GBP/USD exchange rate has encountered difficulties in overcoming the formidable resistance zone spanning 1.2760 – 1.2795 in recent days. Despite this challenge, analysts at Rabobank express optimism about the pound's potential to sustain its upward trajectory. A noteworthy distinction lies in the fact that, unlike the U.S. Federal Reserve and the European Central Bank, the Bank of England does not find itself compelled to hastily implement interest rate cuts. This divergence in monetary policy approaches is anticipated to contribute to the continued strengthening of the British currency.

The economic landscape of the United Kingdom has witnessed significant moments of vulnerability, marked by factors such as economic crises, changes in leadership, strikes, and disruptions in supply chains. These elements collectively led to a decline in the GBP/USD rate from 1.42 in 2021 to approximately parity in the autumn of 2022.

The ongoing cycle of interest rate hikes, coupled with marginally improved economic indicators, has gradually enabled the pound to reclaim its previous levels. Additionally, there is a growing expectation for a hawkish stance from the Bank of England, which is envisioned to be more resolute than the policies of the European Central Bank (ECB) and the U.S. Federal Reserve (Fed). This potential steadfastness implies that interest rates may be maintained at elevated levels for an extended period—a sentiment recently associated with the U.S. Federal Reserve.

Market analysis indicates that the latest macroeconomic information from the UK is not being construed negatively. The market seems to place faith in the hawkish position of the Bank of England. Furthermore, in the UK, concerns related to early elections, a trade war with the European Union (EU), a Scottish independence referendum, and a downturn in the housing market are on a diminishing trajectory. This suggests an improved short-term sentiment towards the currency, as observed by Rabobank analysts.

The envisioned further strengthening of the pound is anticipated to emanate from various factors. Beyond the disparities in interest rates, which are expected to lend support to the pound's quotations in the long term, analysts at Rabobank emphasize that the primary determinants of currency value lie in expectations regarding economic performance.

Regarding data publications from the UK, ING emphasizes the significance of stability in wage and service sector inflation growth. Additionally, the potential for fiscal stimulation in March is considered, potentially delaying interest rate cuts compared to market expectations. ING analysts uphold their call for an August cut, predicting a 100 basis points easing by the end of this year—significantly less than the expectations for the ECB and the Fed.

Wells Fargo provided insights into the inflation decline observed at the end of 2023. While acknowledging these as desirable changes, analysts note that wage inflation may still be too high to sustainably achieve the central bank's 2% inflation target. The duration of the more subdued pace of price growth remains uncertain, according to Wells Fargo analysts.

gbpusd forex analysis
GBP/USD H4 chart, MetaTrader, 16.01.2024


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