GBP/USD stability over 1.2400

• After a wild ride on Wednesday, the GBP/USD exchange rate has found stability above 1.2400.
• For buying pressure to return, the pair has to turn resistance at 1.2480.
• The major indices on Wall Street are forecasting a down day for trading on Thursday.

Even though the US Dollar (USD) gained ground again on Wednesday, the GBP/USD pair still managed to end the day in the black. This was due to hawkish BoE bets after strong UK inflation data, which kept the value of the pound strong. However, after encountering resistance around 1.2480, the pair has lost momentum and is now in a consolidation phase.

U.S. stock index futures are trading sharply down on Thursday morning as major technology companies suffer steep declines after reporting weak profits.

Investors may let the market's sentiment dictate the pair's movement in the afternoon as they search for the next fundamental driver. The USD may strengthen and the GBP/USD may weaken if Wall Street opens poorly and investors flee to safety.

25 basis point (bps) hike in the Fed's policy rate

Following the collapse of SVB, Initial Jobless Claims for the week ending April 15 are anticipated to total 240K, while March Existing Home Sales will round out the economic data releases for the United States. Importantly, some members of the Federal Reserve Board will be giving public addresses.

However, markets are now pricing in a 25 basis point (bps) hike in the Fed's policy rate at the forthcoming policy meeting. It seems quite unlikely that the data releases and Fedspeak will cause a shift in perspective.

On Friday, March retail sales statistics will be released in the United Kingdom, and preliminary Manufacturing and Services PMI surveys will be released by S&P Global in both the United Kingdom and the United States.

GBP/USD analysis breakdown

As the BoE wards off inflation, The 20-period and 100-period Simple Moving Averages (SMA) for the GBP/USD currency pair are both above 1.2430 on the 4-hour chart, and the pair continues to trade above that level.

If the pair closes the day below that level, it might go for the 1.2400 (psychological level, static level), or the 1.2370 (Fibonacci 23.6% retracement of the recent rise) levels.

When prices are trending upwards, the first barrier comes in at 1.2480 (the lower limit of the broken regression channel), followed by 1.2500 (a psychological level and a static level) and 1.2550 (the midpoint of the ascending channel and a static level).

Lower Pound/Dollar due to uncertainty over UK growth

In 2023, the IMF predicts the UK GDP might fall by 0.3%, and in 2024, growth could slow to only 1%. Hunt, a government official, has said that the United Kingdom would “beat the IMF's dismal growth forecasts”.

In the fourth quarter of 2022, the British economy grew, but only by 0.1%. Preliminary data suggest another quarterly increase of 0.1%.

Credit is essential to economic expansion, but as the Bank of England continues to hike interest rates, access to credit is becoming more difficult. This increases the likelihood of a period of decline later this year.

To bring inflation back under control, the Bank remains steadfast in its hawkish approach. The latest numbers show inflation at 10.1% in March, making it the eighth straight month at or over 10% and far beyond the 2.0% objective.

Major obstacles for the UK economy include the ongoing conflict in Ukraine, increasing prices, and interruptions to supply chains. Energy costs have risen due to the conflict in Ukraine, contributing to rising inflation.

As family earnings have been eaten away by rising inflation, consumer spending has fallen. Price increases may be attributed to supply chain problems, which have also disrupted firms and reduced investment.

Uncertainty persists over the growth forecast, which may be best described as a pessimistic worsening. The economy is likely to decline, although not as drastically as was feared.

Once again, investors are eyeing gold.

Predictions for the Pound/Dollar exchange rate

The value of the pound against the dollar moves up and down as investors anticipate the Fed's next move. However, the cable may struggle to keep any upward momentum going due to the gloomy UK economic outlook.

From March through April, the two increased from about $1.18 to $1.25. The rising financial crisis contributed to a period of selling that weakened the value of the US dollar. Although the facts had yet to be revealed, this was perceived as the last straw that would force the Fed to make a dovish shift.

Gilt rates rose in April, indicating that investors believe the Bank of England would maintain its hawkish stance. In the long run, this will weigh on the pound and the FTSE and drive them down. Yields will decrease in line with the buoyant mood in the Forex and equities markets if the bond sellers are wrong and the Bank eases its stance.

Takeaway

In USD, dips are unlikely to continue below $1.21 and rallies are limited at $1.26 for the GBP/USD in the short term. As the UK economy struggles, the Fed is widely anticipated to boost interest rates. On April 27 and 28, investors will be able to see GDP and PCE figures for the United States, respectively.