GBP/USD Rate Forecast: A Path to 1.27?

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Technicians assess the Pound to Dollar exchange rate (GBP/USD) and say further gains in the pair could possibly take in 1.27 over the coming weeks, although notable resistance must first be acknowledged.

A move to 1.27 would offer Sterling sellers their greatest purchasing power since April 2022, a time of descent for the exchange rate owing to a global equity market selloff and surging expectations for higher interest rates at the Federal Reserve.

A year later and these expectations have cooled and the Dollar is retreating, although fears about the health of some sectors of the banking industry continue to offer the Dollar pockets of support.

Sterling meanwhile finds itself outperforming its peers as sentiment towards the UK improves.

"The pound stands out as one of the better performing currencies in G10 and EM combined since the outbreak of the banking turmoil almost three weeks ago. The performance can be tied to confidence in the UK banking sector (outperformance of FTSE350 banks vs Euro and US counterparts)," says Kenneth Broux, a strategist at Société Générale.

"Sterling/Dollar has been back in favour with investors over the last couple of weeks and its safe-have appeal has lifted the price back to levels that were last seen a year ago," says Bill McNamara at The Technical Trader.

But Broux says Sterling has also benefited from the brightening in UK economic prospects, which include two solid runs of PMI releases consistent with economic growth in February and March, as well as upgrades to GDP forecasts from the Bank of England.

The Société Générale analyst says the closing of trades that sought to profit on further declines in the Pound (short positions) has also offered a mechanical bid to the Pound.

"GBP/USD continues to evolve between 1.19 and 1.2450. EUR/GBP is contained in a range between 0.8720 and 0.8830," says Broux of the broader technical setup.

GBP/USD printed its lowest level since December at 1.1804 on March 08, but has since rallied as the UK kept out of the limelight amidst banking turmoil in the U.S., Eurozone and Switzerland.

The banking stresses in the U.S. prompted investors to slash expectations for the number of interest rate rises to come out of the U.S. Federal Reserve over the coming months, while expectations for rate cuts to begin from the second half of the year have risen.

Above: GBP/USD at daily intervals with the 200-day moving average and the resistance located around 1.2450. Consider setting a free FX rate alert here to better time your payment requirements.

The recovery in GBP/USD went as far as 1.2331 on March 28, but the 2023 high is still ahead at 1.2448.

"GBP/USD challenged the double top neckline near 1.1840/1.1800 however a quick bounce has brought it above the 200-DMA and a descending trend line," says Broux, of the technical setup in GBP/USD.

He says the ongoing bounce is likely to persist towards a recent high near 1.2450.

"If this is overcome, GBP/USD is expected to inch higher towards 1.2610 and 1.2750, the 61.8% retracement from 2021. Defending recent higher low at 1.2010 is crucial for persistence in bounce," says Broux.

April is a strong month for the Pound-Dollar exchange rate on a seasonal basis and dollar buyers will be hoping this pattern repeats.

But two significant dates await the Pound in the next month: UK jobs and wages (April 18) and inflation (April 19), where stronger-than-expected releases would potentially boost GBP.

But, weaker data would lead to GBP weaknesses as this would lower the odds of a rate hike at the Bank of England in early May.