During today’s trading hours, the GBP/USD currency pair continued to decline and approached the 1.2200 level.
This was due to a strong demand for the US Dollar caused by a renewed fear of a banking crisis. As a result, the GBP/USD pair remained under pressure and lost ground.
GBP/USD Pair becomes less valuable
The recent movements in the currency pair suggest that its becoming less valuable in the short term.
The two technical indicators to evaluate the trend are the 20-day Simple Moving Average (SMA) and the ascending regression channel.
The pair has dropped below both these indicators, thereby representing a bearish movement. Moreover, the third indicator, which is the Relative Strength Index (RSI) has also dropped under 50.
This is also suggestive of a negative outlook toward the forex market for GBP/USD pair. Looking at potential shortcomings, the level at 1.2200 is a significant support level due to its alignment with the 50-period SMA.
This is coupled with its psychological significance and static nature. If the pair closes under this level in a four-hour timeframe, it could attract further selling pressure.
This could essentially result in a decline toward the next static levels of 1.2170 and 1.2130.
Technical Analysis of GBP/USD Pair
If the GBP/USD pair is able to stabilize and move above the 1.2270/80 level, it may regain its position within the ascending channel.
This could lead to potential resistance levels at 1.2300, which holds significance both as psychological and static levels. It could also face possible resistance at 1.2345, which was the high point of yesterday’s trading session.
Earlier today the GBP/USD currency pair experienced a decline in its bullish trend and fell to around 1.2250. It had previously, a day earlier closed at the level of 1.2300 or even below this level.
The technical analysis indicates that the pair may continue its correction in the short run.
Additionally, the prevailing pessimistic risk sentiment is expected to favor the US Dollar and maintain its strength leading up to the weekend.
Bank of England Raises Its Key Rate
As anticipated, mid-week the Bank of England increased its key rate to 4.25% which reflects an increase of 25 basis points.
Out of the members of the Monetary Policy Committee (MPC), there were only two votes in support of keeping the rate as it is.
The two members were in favor of keeping the key rate at 4%, thereby showing their desire to keep it unchanged.
The Bank reiterated in its policy statement that signs of more lasting pressures would necessitate additional tightening of fiscal policy.
After the Bank of England made the policy announcements, Governor Andrew Bailey stated that they anticipate inflation to decrease rapidly before summer.
However, he warned that if the range of prices attempted to surpass inflation, it could lead to higher inflation rates.
Bailey informed BBC that the government would have to raise the key rate again if there was a continued increase in prices.
Futures Markets – Interests Rates Likely To Increase
According to a global news agency, there is a 38% chance of the interest increasing by another 25 basis points. This increase is expected to hit the market in May, which is just a month away.
The UK’s Office for National Statistics released data earlier today indicating an increase of 1.2% in Retail Sales last month.
This figure in fact went beyond the expected growth rate of 0.2%. However, this news did not appear to have a significant impact on the market.
PMI Surveys Effect on Pound and USD
S&P Global is expected to release its initial Purchasing Manager Index (PMI) survey for March for both, the US and the UK.
If the data indicates a surge in wage inflation with respect to the UK, this could sway the markets towards another rate hike.
The Bank of England might yet again increase the interest rate and provide support for the pound to maintain its current value.
The PMI surveys can also bring positive news for the US dollar and help it compete with its competitor currency.
If the surveys show the private sector experiencing robust economic activity and high wage pressures, then it’s good news for the US Dollar.
This will most likely allow the US Dollar to gain strength compared to other currencies.
