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GBP/USD consolidating in the 1.3470 region

  • The British pound is posting yet again another losing week against the USD but remains in a tight trading range.
  • Analysts at ING believe that GBP bearishness might be a market over-reaction.  

The GBP/USD pair is trading at around 1.3478 down 0.30% on Friday.

GBP/USD established an intraday high at 1.3527 in Europe then fell a little bit more than 70 pips and reached a low at 1.3454 in the American session.  

The greenback continued its multi-week uptrend on Friday. In fact, the US Dollar Index (DXY) which measures the relative to a basket of currencies hit fresh multi-week’s highs at 93.83 on the day.

The GBP/USD bear trend is fueled, on the one hand by fears that the Bank of England will not raise interest rates this year, or at least less than it was initially expected by traders. On the other hand, the Federal Reserve Bank is expected to follow through with its policy normalization and hike at least three to four times in 2018, which is bullish for USD.

However, analysts at ING argue that the GBP bear move is a market over-reaction. “With wage growth on the rise, the chances of an August rate hike might be underestimated, and we still narrowly think a rate hike is more likely than not over the summer,” wrote James Smith at ING in a note. “But this is certainly not a done deal. The high street is still having a particularly tough time, and contrary to the Bank’s statement last week, suggests more than just snow prompted at least some of the first quarter lull,” he added. A rate hike in August will mainly depend on the data. BoE will closely look at inflation, wage growth, consumer confidence, borrowing as well as growth and spending.  

GBP/USD 4-hour chart  

“A convincing break below mid-1.3400s is likely to accelerate the slide towards the 1.3400 handle before the pair eventually extends the downfall further towards the 1.3300 handle in the near-term. On the upside, any recovery attempts back above the key 1.3500 psychological mark might now confront fresh supply near the 1.3530 level and is followed by 200-DMA resistance near the 1.3555-60 region,” wrote FXStreet’s own Harsh Menghani.    

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