Home Forex Markets GBP/USD analysis: Recent highs likely to continue as resistance

GBP/USD analysis: Recent highs likely to continue as resistance

by WOOWinvest
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Summary: Sterling softens after Bank of England does not vote to raise interest rates by 0.50%; Asia-Pacific stock markets are mixed, risk assets maintain overnight gains; with the announcement of the central bank decision, will GBP/USD make some progress?

Sterling has stabilized after the Bank of England raised its key interest rate by 25 basis points yesterday. Sterling initially sold off after the decision was announced on expectations that some committees would vote to raise rates by 50 basis points, but that did not materialise. Sterling found some support after the dust settled.

Asian currencies held on to their North American close as markets assessed the central bank’s actions. Risk assets held on to gains as commodity markets recovered from the recent chaos.

Asian shares were mixed, led by a positive Wall Street, with Chinese and Hong Kong stocks softening slightly after sharp gains this week.

Australia’s ASX 200 and Japan’s Nikkei 225 posted gains, attributed to higher commodity prices and a weaker yen, respectively.

The Bank of Japan kept interest rates unchanged today, in line with expectations.

U.S. inflation remains elevated after the Federal Reserve decided to raise interest rates by 25 basis points this week. Rightly or wrongly, the Fed dropped the option to raise rates by 50 basis points at the start of the Ukraine war.

Markets appear to have lost faith in the Fed’s ability to control inflation. The 2-year breakeven inflation rate is 200 basis points higher than 4.7% this time last year.

With the nominal yield on the 2-year U.S. Treasury note approaching 1.95%, this has pushed real yields deep into negative territory. That’s a problem for bond investors and retirees who rely on interest income.

Later today, U.S. President Joe Biden is expected to hold talks with Chinese President Xi Jinping. The situation in Russia is clearly on the agenda.

Observers point out that the two sides are likely to take a delicate approach. China does not want to be seen as bowing to the will of the United States, but also wants to ensure that its domestic growth is not hampered by global factors.

The United States, on the other hand, wants to ensure that sanctions against Russia are not without results, and wants assurances that China will not open a back door for Russia in global payments.

GBP/USD daily chart technical analysis

Sterling held its ground after Wednesday’s rally, attempting to pierce its recent high of 1.31947.

This level and the pivot point at 1.32727, which confluences with the 21-day simple moving average (SMA), could provide further resistance.

On the downside, support is likely at the recent low of 1.29999, followed by support from the descending trendline, which now happens to be above the October 2021 low of 1.28538.

(Daniel McCarthy)

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