GBP/USD May 6-10 – Pound soars as Carney hints at further rate hikes

GBP/USD bookended the week with sharp gains, soaring 2.1 percent. Investors will be keeping a close eye on monthly and quarterly GBP reports, as well as manufacturing production. Here is an outlook for the highlights of this week and an updated technical analysis for GBP/USD.

Central banks were in the spotlight on Wednesday and Thursday, as the Federal Reserve and BoE held their monthly meetings. The BoE maintained interest rates, but BoE Governor Mark Carney had a hawkish message (warning?) for the markets. Carney said that there could be a number of rate hikes from the BoE, if Brexit is resolved and growth and inflation point higher. The markets have priced in just one rate hike until 2021. Carney’s comments sent the pound soaring on Friday.

In the U.S, the Federal Reserve stayed on the sidelines, maintaining the benchmark rate. The rate statement noted that inflation pressures are muted and that the FOMC would remain patient regarding future rate movements. Fed Chair Jerome Powell reinforced this stance at a follow-up press conference, saying “we don’t see a strong case for moving in either direction”. The Fed is already on record as saying it does not expect to raise rates before 2020, and with inflation levels persistently below the Fed’s target of 2.0%, the Fed can afford to continue its wait-and-see stance.

Central banks were in the spotlight on Wednesday and Thursday, as the Federal Reserve and BoE held their monthly meetings. The BoE maintained interest rates, but BoE Governor Mark Carney had a hawkish message (warning?) for the markets. Carney said that there could be a number of rate hikes from the BoE if Brexit is resolved and growth and inflation point higher. The markets have priced in just one rate hike until 2021. Carney’s comments didn’t make much of an impact on investors, as the pound has lost ground on Thursday.

GBP/USD daily graph with resistance and support lines on it. Click to enlarge:

1. RICS House Price Balance: Wednesday, 23:01. The Royal Institute of Chartered Surveyors continues to point to a drop in house prices. In March, 24% more surveyors reported a drop in prices, and little change is expected in April, with an estimate of 22%.
2. Manufacturing Production: Friday, 8:30. This key indicator has posted strong gains of 0.9% and 0.8% in the past two months, easily beating forecasts. However, the markets are braced for a weak reading of 0.1% in March.
3. GDP Data: Friday, 8:30. The initial release for Q1 is expected to show a gain of 0.5%, after a reading of 0.2% for Q4. The monthly GDP report dipped to 0.2% in February and the downward trend is expected to continue in March, with an estimate of 0.0%.

* All times are GMT

GBP/USD Technical analysis

Technical lines from top to bottom:

With the pound climbing sharply last week, we begin at higher levels:

1.3615 capped the pair in late 2017. The round number of 1.35 is a pivotal line.

1.3375 was a high point in July. It is followed by the round number of 1.3300.

1.3217 was the high point of the pound rally in late January.

1.3170 was a swing high in early November.

1.3070 was a high point in mid-November.

The round number of 1.3000 has strengthened in support after strong gains by the pound late in the week.

1.2910 (mentioned  last  week) is next.

1.2850 capped recovery attempts in late November.

I am neutral on GBP/USD

Despite the uncertainty surrounding Brexit, the British economy has been steady. Mark Carney’s comments about possible interest rate hikes was a vote of confidence in the resilience of the British economy. The U.S. economy remains strong, as underscored by solid GDP and nonfarm payrolls reports.

Further reading:

• EUR/USD forecast  – for everything related to the euro.
• USD/JPY forecast  – projections for dollar/yen
• AUD/USD forecast  – predictions for the Aussie dollar.
• USD/CAD forecast  – Canadian dollar analysis
• Forex weekly forecast  – Outlook for the major events of the week.

Safe trading!