The Pound Sterling (GBP) needs to stay below 1.3480 against the US Dollar (USD) to have a chance at reaching 1.3405. Analysts think GBP may trend downward, but it’s uncertain if it will hit the support level at 1.3365. In the last 24 hours, GBP rose to 1.3588 but then fell to 1.3417, with predictions it might test 1.3400. Major support at 1.3365 is not expected to be reached anytime soon.

Short Term Outlook

The outlook for the next 1 to 3 weeks has changed from positive to neutral. GBP is likely to move between 1.3450 and 1.3590. There is downward pressure, but it remains unclear if GBP can reach the key support at 1.3365. To keep this downward trend going, GBP should not exceed the resistance level of 1.3510. Given this outlook, we advise derivative traders to think about strategies that profit from a drop or stagnation in the Pound. This may involve buying put options or setting up bearish credit spreads to take advantage of the expected fall toward 1.3405. The currency must first show it can’t maintain a rally above 1.3480. Our negative view is backed by recent data showing UK inflation remains high, recorded at 4.0% in January 2024, which is twice the Bank of England’s target. While this implies that interest rates will likely stay high, it also raises the risk of economic stagnation, putting pressure on the currency. This economic strain makes a steady rise above 1.3590 unlikely in the coming weeks.

Market Insights

At the same time, the Dollar is strong due to a robust US economy. The latest jobs report revealed a remarkable addition of 353,000 jobs, keeping unemployment low at 3.7%. This allows the Federal Reserve to postpone interest rate cuts, leading to a difference in policies that historically benefits the Dollar over the Sterling. This reinforces the downward pressure between the two currencies. We also see that market positioning shows caution. Recent Commitment of Traders (CFTC) reports indicate that large speculators have reduced their long positions in the Pound. This suggests that institutional confidence in the Pound’s potential for growth is decreasing. For traders, this signals that taking a contrary bullish position now carries increased risk, especially if the price cannot break through the 1.3510 resistance. Create your live VT Markets account and start trading now.

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