Pound may regain lost ground. Forecast as of 31.05.2024 | LiteFinance
At the end of spring, GBPUSD bulls retreated due to the rising US Treasury yields, but they are not going to give up early. The pound has plenty of trump cards to play. Let’s discuss that and make a trading plan for GBPUSD.
Weekly fundamental forecast for pound sterling
Unlike previous years when there was a clear Forex favorite, the two G10 currencies continue to go head-to-head in 2024, taking turns to lead the race. A rapid rise in US Treasury yields has returned the leading position to the US dollar, but the British pound is not about to surrender. It may be the one to emerge as the year-end winner.
The British currency and the greenback have a lot in common. The UK and the US will hold general and presidential elections, respectively. The futures market expects the Bank of England and the Fed to start cutting interest rates simultaneously. However, unlike the US economy, which has been robust but is starting to slow, the UK economy slipped into recession but is recovering. This gives an advantage to GBPUSD bulls, reflected in the hedge funds’ changing stance on the pound. Three weeks ago, they were bearish for the first time since December 2021, but now their stance has turned bullish.
Net non-commercial positions on GBP
Source: Bloomberg.
The pound’s strong performance is evidenced by the fact that its trade-weighted exchange rate reached its highest level since June 2016, when the UK 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 rates until September. By then, the ECB could be two steps further down the path of monetary expansion. Even one or two tightening moves by the Bank of Japan will not significantly narrow bond yield differentials, pushing GBPJPY higher.
The upcoming general election on July 4 is not just a political event, but a potential game-changer for the currency market. On the one hand, this fact shifts the BoE’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 eliminates future policy uncertainty and allows Andrew Bailey and his colleagues to pursue data-dependent policy.
Moreover, the Labor party, which is leading in the polls, is seen by investors as a better option than the Conservatives. The Labor party is in a position to forge closer ties with the European Union. This is undoubtedly not about regaining access to the single market or a customs union, but some trade barriers could be removed. Coupled with a potential boost to retail sales from the World Cup, Olympics, and Wimbledon, this would further support a recovery in UK GDP.
Weekly trading plan for GBPUSD
A slowdown in a strong economy is worse for the currency than a rebound in a weak one. Therefore, if the US economy continues to show signs of cooling, the GBPUSD pair will resume its bullish trend. The pair’s consolidation above 1.27 and the subsequent rise to the resistance level of 1.2745 will create a buying opportunity.
Price chart of GBPUSD in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.
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