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GBP/USD Daily Forecast – Sterling Falls Into Range Above 1.3050

Jignesh Davda

Mixed Sentiment from the UK

The last 24 hours have brought about mixed sentiment towards the British pound. PM Johnson pushed forward with his exit bill yet BoE Governor Carney signaled a readiness to ease monetary policy.

MPC member Tenreyro brought about similar rhetoric today, stating that though the jobs market is strong, inflation is expected to be below target. He added that the risks are tilted to the downside, and similar to Carney, said that more stimulus might be needed in the absence of a recovery.

Carney’s speech on Thursday triggered a rapid drop in the pound to dollar exchange rate although there was a lack of follow-through once the US markets opened. The exchange rate has recovered about half the losses that followed Carney’s speech.

Prime Minister Johnson passed his withdrawal agreement yesterday which will be signed into law by the end of the month. As a result, the UK will leave the EU on January 31.

A transition period will begin following the departure which will provide the opportunity to negotiate trade agreements. This will tend to be a major driver for Sterling fluctuations, especially since Johnson has insisted there will not be any extension to the transition period which finishes at the end of the year.

The latest US jobs report will be released in the North American session and is expected to trigger volatility in the markets. Analysts are looking for 162 thousand additional jobs and for the unemployment rate to remain unchanged at 3.5%

Technical Analysis

GBP/USD is trading within a downtrend channel and a spike higher on the back of Tenreyro’s speech was held by the upper bound of it.

GBPUSD Hourly Chart

While within the channel, a logical downside target for the pair appears to be the psychological 1.3000 handle.

Sterling has shown resilience since yesterday, considering that it found a bottom ahead of 1.3000 support despite a strong dollar and the dovish outlook from Carney.

Nevertheless, the bias remains to the downside over the near-term, in the absence of a bullish break of the downtrend channel.

Bottom Line

  • BoE members this week are warning of easing measures to come if the economy does not recover.
  • The US jobs report will be out later today and volatility is expected.

This article was originally posted on FX Empire