Uncertainty over the Bank of England also contribute to limiting the pound's rise | 18 Noviembre 2024

GBPUSD:

The Pound-Dollar pair starts the new week on a subdued note and is consolidating in a range above the round 1.2600 mark, or the lowest level since mid-May, reached on Friday. For now, spot prices appear to have broken a six-day losing streak on the back of a modest decline in the US Dollar, although the fundamental backdrop supports the prospects for an extension of the recent established downtrend.

The US Dollar remains on the defensive below the one-year high (YTD) set last Thursday as bulls took a pause to take a breather after the explosive rally following the US election. However, any meaningful decline in the dollar seems unlikely amid expectations that US President-elect Donald Trump's policies are likely to revive inflationary pressures and limit the scope for further rate cuts by the Federal Reserve (Fed). This has been a key driver of the recent rise in US Treasury bond yields, suggesting that the path of least resistance for the US Dollar lies to the upside.

The British Pound (GBP), on the other hand, may struggle to attract buyers amid uncertainty over the Bank of England's (BoE) future interest rate path. Data released last week showed that UK wage growth excluding bonuses slowed in September, while the unemployment rate rose to 4.3% from 4.1%. In addition, UK GDP unexpectedly contracted in September for the first time in five months, reinforcing expectations of a BoE rate cut. Nevertheless, Bank of England members are not expected to cut interest rates at the December meeting.

This, in turn, makes it reasonable to expect strong follow-through buying to confirm that the GBP/USD pair has formed a short-term bottom. Bearish traders, however, can now wait for a sustained breakout and consolidation below the 1.2600 round figure before placing new bets amid a lack of market-significant economic releases on Monday from both the UK and the US.

Trading recommendation: Watch the level of 1.2600, if consolidated below consider Sell positions, if rebounded consider Buy positions.

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