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At the end of spring, GBP/USD bulls pulled back on rising US Treasury yields, but they are not giving up too early. The pound has a lot of trump cards to play. Let’s discuss it and make a trading plan for British pound against the US dollar.
Weekly fundamental forecast for the British pound
Unlike previous years when there was a clear favorite in the currency market, the two G10 currencies continue to go head-to-head in 2024, taking turns leading the race. A rapid rise in US Treasury yields has restored the US dollar’s leading position, but the British pound is not about to give up. He may be the one who emerges as the winner at the end of the year.
The British currency and the US dollar have a lot in common. The United Kingdom and the United States will hold general and presidential elections respectively. The futures market expects the Bank of England and the Federal Reserve to begin cutting interest rates simultaneously. However, unlike the US economy, which was strong but began to slow, the UK economy slid into recession but is recovering. This gives an advantage to British pound against the US dollar Bulls, which is reflected in the changing attitude of hedge funds towards the pound. Three weeks ago, they were bearish for the first time since December 2021, but now their stance has turned bullish.
Net non-trading positions in GBP
Source: Bloomberg.
The strong performance of the British pound is evidenced by the fact that its trade-weighted exchange rate reached its highest level since June 2016, when the United Kingdom voted to leave the European Union. Against the euro, the pound has risen to its highest level since 2022, against the yuan since 2015, and the yen since 2008. Markets do not expect the Bank of England to cut interest rates until September. By then, the ECB may have taken two steps forward on the path to monetary expansion. Even one or two tightening steps by the Bank of Japan will not narrow bond yield spreads significantly, which will push… British pound versus Japanese yen higher.
The upcoming general election on July 4th is not just a political event, it could be a game-changer in the currency market. On the one hand, this fact shifts the date of the Bank of England’s first repo rate cut to a later date, removing talk of the central bank’s desire to support the ruling party. On the other hand, it removes uncertainty about future policies and allows Andrew Bailey and his colleagues to pursue data-driven policies.
Moreover, Labour, which is leading in the polls, is seen by investors as a better choice than the Conservatives. Labor is in a position to forge closer ties with the EU. This is certainly not about restoring access to the single market or customs union, but it is possible to remove some trade barriers. Combined with a potential boost to retail sales from the World Cup, Olympics and Wimbledon, this would further support the UK’s GDP recovery.
Weekly trading plan for GBP/USD
A slowdown in a strong economy is worse for the currency than a recovery in a weak economy. Therefore, if the US economy continues to show signs of slowing down, this could lead to slower growth British pound against the US dollar The pair will resume its upward trend. Consolidation of the pair above 1.27 and subsequent rise to the resistance level of 1.2745 will create a buying opportunity.
GBPUSD price chart in real time mode
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