Market Analysis

Ahead of the Fed policy meeting, the pound sterling rises as the US dollar declines

Amos Simanungkalit · 29 Apr 202410.3K Views

The Pound Sterling (GBP) hits a fresh two-week high against the US Dollar (USD) near 1.2550 during Monday's London session, driven by improved market sentiment and a weakening US Dollar.

The GBP/USD pair strengthens amid mixed signals from Bank of England (BoE) policymakers regarding the inflation outlook, adding uncertainty to the timing of potential interest rate cuts.

BoE Deputy Governor Dave Ramsden stated in mid-April that the risks of elevated inflation have diminished, predicting that headline inflation would reach the 2% target in May and remain around that level for the next two years.

However, other BoE policymakers, including Chief Economist Huw Pill, Jonathan Haskel, and Catherine Mann, are less optimistic about the inflation trajectory. They emphasize the importance of the core Consumer Price Index (CPI), which remains high due to persistent service inflation. Pill noted last week that it's premature to consider cutting the bank rate.

Technical Analysis: Sterling strengthens and reaches the H&S neckline

Market analysts anticipate the BoE may consider rate cuts at either the June or August meeting, with a slight preference towards August. James Smith, an economist at ING Financial Markets, explained that the timing hinges on the resilience of service inflation. The Pound Sterling has recovered from recent losses and is hovering near the neckline of a Head and Shoulders chart pattern, drawn from the low on December 8 around 1.2500.

The GBP/USD pair is aiming to stay above the 20-day Exponential Moving Average (EMA) at approximately 1.2510, but faces resistance at the 200-day EMA around 1.2550. The 14-period Relative Strength Index (RSI) suggests a period of consolidation ahead as it moves into the 40.00-60.00 range.