Weekly Currency Outlook – British Pound

The British pound was able to gain nearly two per cent last week. The greenback which drops against a basket of its peers supported in recent gains. After the Federal Reserve increased interest rates by a quarter of a percentage point on Wednesday, the dollar declined. That was the highest policy rate set by the US central bank in sixteen years.

The Fed maintained the benchmark overnight interest rate in the range of 5.25% to 5.50% while leaving the door open for a further increase in the accompanying policy statement.

Looking at the U.K. last week’s economic numbers, the preliminary readings of the UK Flash Manufacturing PMI for July dropped to the lowest level of 2023 with the 45.0 mark compared to the market expectations of 46.1 and previous readings of 46.5.  The Services PMI also stood at a six-month low by declining to 51.5 from 53.7 prior and 53.0 market forecasts.

This week, the important Bank of England (BoE) Monetary Policy Meeting on Thursday and the US Nonfarm Payrolls (NFP) on Friday will have to be watched.

The Bank of England (BoE) will reveal its latest monetary policy decision next Thursday with the market looking to lift its Bank Rate to 5.25% from a current level of 5%. The recent better-than-expected decline in UK inflation has provided the BoE with some wiggle room and more time to observe the cumulative effects of the 500 basis points of rate hikes that have already been delivered, even though there is a likelihood of a 50 basis point hike.

As real income in the United Kingdom families is substantially squeezed, higher inflation and a policy of constrained interest rates increase the burden on them. The property market, merchants, and industries in Britain are all experiencing turbulence as a result of increased borrowing prices and a demand outlook that is uncertain. The BoE is poised to increase interest rates further to achieve price stability notwithstanding limiting conditions.

Due to the significant burden of increasing inflation and skyrocketing loan rates, the UK’s housing sector, factory operations, and retail orders have been put under strain.

Beyond forecasts, inflation in Britain decreased in June, but a one-time decrease is insufficient to give families reason for confidence.

Technical Outlook

The GBP/USD pair is continuing to trade upward. Since 29 May 2023, the pair gained nearly 3.80%. From the low 1.22984 to 1.27949 today’s high.

On the above chart, GBP/USD pair still is trading above its previous breakout and three white shoulders. Both are indicating a bullish trend in the near future.

However, after the recent rally, the pair may consolidate at 1.25810-1.26225 levels which will offer a good buying opportunity. The upside target would be 1.28525-1.29280.

On the downside, crucial support is seen at 1.22980 a break below only direction will change and GBP/USD will retreat towards 1.21902-1.20850.

In terms of GBP/INR, the pair found support from 104.8380 and traded at 105.7570 up 0.07%. In the near future, a break above 105.8795 will open the door for 106.1965-106.8052 very soon.