GBP/USD Technical Analysis: Attempts to Avoid Important Support – 13 February 2023
This week’s UK wages, and inflation data is likely to support arguments from Bank of England policymakers who want to keep raising interest rates, adding to the fastest rise in borrowing costs in three decades.
During last week’s trading, the price of the currency pair GBP/USD was subjected to selling operations.This happened with the rest of the other major currencies against the dollar, with losses extending to the support level of 1.1961.Since the middle of the week’s trading, the currency pair tried to recover, but its gains did not exceed the resistance level of 1.2193 and closed trading around the 1.2055 level.This confirms the continued control of the bears over the trend.
Economists expect two separate reports to show that British consumer prices are still rising at a double-digit pace and that companies are boosting wages at the fastest pace ever, barring a year marred by pandemic shutdowns. For his part, Bank of England Governor Andrew Bailey and his colleagues have indicated that they are nearing the end of the tightening cycle that began 14 months ago and brought the prime rate from near zero to 4%, the most since 2008. However, they also see the jobs market tightening and building wage pressures as a potential stumbling block in their battle to rein in inflation. Commenting on that, Sonali Bonhani, head of the economics department in the United Kingdom at Credit Suisse, said: “The evidence that wage pressures continue to rise should keep the pressure on the Bank of England to raise interest rates even more.”
Investors, who only a few months ago expected interest rates to rise to 5% or more, are now fully rooting for a one-quarter-point hike by midyear. While Bank Governor Billy opened the door to the temporary halt, he also warned of the risks that could force the Bank to sharply increase the increase.
With the British economy in recession in the last quarter of last year and likely to remain in recession until 2024, the Bank of England and Prime Minister Rishi Sunak are under pressure to ease their efforts to contain the worst bout of inflation since 1981. Britain’s CPI jumped 11.1% in October and then fell to 10.5% in December. Official figures due on Wednesday are likely to show it remained above 10% in January, according to a Bloomberg survey of economists.
The British labor market is a bigger concern. Where Bailey and his colleagues said that the shortage of workers is fueling upward pressure on wages and threatens to fuel an inflationary spiral. While Bailey saw signs that those pressures were beginning to ease as vacancies fell, official wage data proved to be robust. A Bloomberg survey showed that average weekly wages excluding bonuses likely grew 6.5% in the fourth quarter, up from 6.4% in the previous three-month period. These numbers will be the highest ever since 2021, when low-wage workers were dropped from the survey because their employers closed their doors during the pandemic.
James Smith, economist at ING, warned that wage pressures had continued to accelerate in recent months, and he expected regular wage growth to rise further. And he said, “I expected that to change gradually. And I think wage growth may be nearing its peak. And there was a hint of that in the latest survey of decision makers from the Bank of England last week.”
Divisions have emerged in the Bank of England’s nine-member monetary policy committee over whether more action is needed to limit price pressures. As Silvana Teneiro said last week that she is considering cutting interest rates because she believes that monetary policy is “very tight indeed”. It warned that about a fifth of the tightening from previous interest rate hikes had flowed into the economy. However, Jonathan Haskell, another outside member of the Monetary Policy Committee, took a more hawkish stance, saying that “economic theory suggests that uncertainty about continued inflation should be met with stronger measures.”
There is no change in my technical point of view for the performance of the GBP/USD currency pair. The general trend will remain downward as long as the pair approaches around and below the psychological support level of 1.2000. According to the performance on the daily chart below, the support levels of 1.1955 and 1.1820 will be sufficient to push the technical indicators towards levels satisfied with the sale. Any chances for the sterling dollar pair to rebound higher will remain a selling target as long as there are gloomy expectations for the future of the British economic recovery and as long as the stronger dollar is expected to raise interest rates and investors turn to it as a safe haven.
According to the performance the rebound of the currency pair towards the resistance level 1.2235 will be important to start the bulls’ control. Today, the sterling/dollar pair is not expecting any important and influential economic data, and the performance of the global markets and the willingness of investors to take risks will have an effect on the performance of the currency pair.
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