Oct 12, 2023

The British pound has rallied from recent weakness but is now at a crossroads at a weekly resistance level.


GBPUSD: Daily Chart

GBPUSD now faces strong resistance from a weekly level at the 1.2320 level. The market is trading slightly lower, but it will lead to a breakdown or continuation of the bullish move.

The market will have an early read of UK GDP on Thursday, with analysts expecting an improvement to 0.3% from 0.2% last month.

Later in the session will be the latest inflation data from the United States, with a small dip to 3.6% from 3.7% expected. The market could move on a deviation from that, but Wednesday and the recent market sentiment have traders thinking that the Federal Reserve may be done with rate hikes. A recent surge in 10-year bond yields has also cooled off, allowing the stock market to rally.

A majority of Federal Reserve officials agreed on keeping rates unchanged at 5.25%–5.50% at the September 19–20 meeting, according to the minutes released Wednesday. They suggested that policymakers wanted rates to be kept restrictive to achieve the central bank’s price stability goals. Some participants argued that monetary policy should shift to “how long” to hold rates at restrictive levels from “how high.”

The UK economy was dealt a blow as the IMF downgraded its forecasts for the country. The group said Britain will face sustained higher interest rates and the weakest economic growth across the G7 next year.

While Rishi Sunak’s government is facing a looming general election, the IMF marginally upgraded its growth prediction for UK gross domestic product (GDP) this year to 0.5%, from 0.4%, but downgraded its forecasts for 2024 from 1% to 0.6%.

A worse-than-expected GDP number tomorrow could see the pound lose its recent rally. Investors feel they have a better handle on the path ahead for the Federal Reserve.

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