GBP/USD Forex Signal: Gets Overbought Ahead of the Latest US Inflation Data – 14 March 2023
The GBP/USD price will react mildly to the latest UK jobs numbers.
The GBP/USD staged a strong recovery as investors placed their bets that the Fed and Bank of England (BoE) will change their tune on interest rates. It soared to a high of 1.2200 as US and UK bond yields plummeted to their lowest levels in months.
American and British bond yields retreated spectacularly as volatility in the market continued. The main concern is that the banking sector is on edge following the collapse of Signature, Silicon Valley Bank, and Silvergate Capital.
HSBC, the biggest bank in assets in Europe, announced that it will acquire Silicon Valley Bank’s UK branch for 1 pound. It then announced that it will pump in over 2 billion pounds to stabilize the company. In the US, authorities provided a backstop to SVB and Signature Bank, meaning that its depositors will have access to the funds.
The fear among economists was that the ongoing interest rate hikes would break some things. And it seems that the banking sector, which is core to the economy, has been the first one to break. This happened as shorter-dated bonds provide better returns than longer-term bonds.
In the US, the ten-year bond yields dropped to 3.522% while the 2-year retreated to 4%. Similarly, in the UK, the 10-year dropped to 3.4%. This happened as analysts predicted that the Fed and Bank of England will slow their rate hikes going forward.
In a note, analysts at Goldman Sachs said that UK’s inflation will slip to the Bank of England’s 2% target by the end of the year. The caveat is that this will happen if the government extends the ?2,500 household energy bills cap in this week’s budget.
The GBP/USD price will react mildly to the latest UK jobs numbers. Economists believe that the country’s unemployment rate rose slightly to 3.8% in January as the number of claimants dropped to 12.4k.
The most important data will be the upcoming US inflation data that will come out in the afternoon session. A higher rate will mean that the Fed will have a difficult time in the upcoming meeting. I suspect that the bank will start prioritizing economic stability instead of inflation.
The GBP/USD price continued rising on Tuesday morning ahead of the key US inflation data. It crossed the crucial resistance shown in green, which connects the highest levels since February 3rd. It jumped above the 50-period moving average while the Average Directional Movement Index (ADX) has moved close to 40. The Relative Strength Index (RSI) moved to the overbought level.
Therefore, the pair will likely resume a bearish trend as sellers attempt to retest the descending trendline at about 1.200. The stop-loss of this trade will be at 1.2275.