Trading Cable: Strong pound or weak market?

After reviewing U.S. and U.K. economies, GBPUSD remains almost impossible to forecast. Will the bearish rise continue? What’s pushing and pulling Cable and where will it go next? Let’s explore GBP and USD.

GBPUSD price action

GBPUSD has retreated from its intraday high and slipped back to $1.25 (USD), reflecting the cautious sentiment following the Bank of England (BoE) monetary policy meeting. The British Pound has remained in a narrow range for over a week, which is typical behavior prior to both a breakout and a crash, so which one is coming?

Cable’s recent rise to its highest level since April 2022 was driven by disappointing U.S. inflation data. However, the consolidation phase before the coming BoE meeting, coupled with a corrective bounce in USD, has also influenced GBPUSD’s latest bullish price action.

Positive factors such as an improvement in the U.K.'s RICS House Price Balance for April are also boosting GBP. In addition, hawkish forecasts from the National Institute of Economic and Social Research (NIESR) have prompted speculation about more interest rate hikes on the horizon, which may attract more institutional investors to GBP.

U.K. Inflation is at 10.1% right now, but NIESR has estimated a drop to 5.4% in the final quarter of 2023, which is significantly more aggressive than the forecasts from the Bank of England and the British government's Budget Watchdog. Lower inflation typically results in higher currency value, making GBP worth watching, especially if Prime Minister Sunak can hold to that inflation projection.

Conclusion

The market is somewhat pessimistic about U.S. assets right now, as seen in the mildly bullish stock sector alongside the downbeat U.S. Treasury bonds. As for sterling, the general sentiment among economists and analysts remains positive in the short term, but not significantly so. Trader sentiment, at the time of writing, holds at 51% Sell, 49% Buy. Clearly traders are not seeing strong bulls or bears for GBPUSD.

There are multiple weak forces pushing on both currencies, making technical and fundamental analysis less than effective, so don’t rely on charts alone. Given that the markets are not ‘business as usual’, trading pattern formations might be misleading.

Riding the rapid volatility swings as a day trader may be preferable to long-term trading, but make sure your equity can cover an extreme but brief spike or crash, or set tight Stop Loss and Take Profit. 

Exness Stop Out Protection reduces stop outs by up to 30%, but you’ll need to keep an eye on the GBPUSD chart hourly and daily. Try installing the Exness Trade app to follow GBPUSD on your mobile. Get breaking news and price notifications and even trade on the go. With such uncertain markets, there’s no better way to trade GBPUSD than on your mobile.

This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.

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Author:

Paul Reid

Paul Reid is a financial journalist dedicated to uncovering hidden fundamental connections that can give traders an advantage. Focusing primarily on the stock market, Paul's instincts for identifying major company shifts is well established from following the financial markets for over a decade.