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British Pound Latest: GBP/USD Following the US Dollar as Risk Looks to Ease


GBP/USD - PRICES, CHARTS, AND ANALYSIS

  • Cable will be driven by risk sentiment in the coming days.

  • Chancellor Jeremy Hunt says the UK will avoid a recession.

Financial markets are taking a breather in early turnover today after yesterday’s flight to quality. The rollover of banking fears from the US to Europe prompted a widespread, and at times fairly indiscriminate, dumping of risk assets, will haven assets such as the US dollar, US Treasuries, gold, and the Japanese Yen all picked up strong bids. The risk tone in the market today has been helped by news the beleaguered banking group Credit Suisse has been thrown a 50 billion Swiss Franc lifeline by the Swiss National Bank to shore up its balance sheet. At one stage yesterday, the CDS market was pricing in a near 50% chance of Credit Swiss defaulting. With the market slightly calmer today, the US dollar has moved lower allowing a range of USD pairs, including cable, to push higher.


Later in the session today, ECB President Lagarde will announce the central bank’s latest monetary policy decision. At the last meeting, Ms. Lagarde said that there would be a 50bp hike today but this must now come into question against a background of financial stress and potential contagion.


Wednesday’s UK Spring Budget was overlooked as the fast-moving events and movements in the marketplace took center stage. Chancellor Hunt did say that the UK would avoid recession in 2023 and that inflation would fall from 10.7% in the final quarter of 2022 to 2.9% by the end of the year. While still above the central bank’s target of 2%, this sharp fall will give the Bank of England the ability to pare back on further rate hikes if required.


Next week is a big week for cable traders with the FOMC rate decision on March 22 and the Bank of England’s next policy meeting on March 23. Current market thinking on what each central bank will do is mixed and changing all the time, so the only thing that can be guaranteed next week is further volatility.


Cable is moving higher today after yesterday’s sell-off and trades on either side of 1.2100. The short-term bearish channel remains in play and the CCI indicator shows the pair in overbought territory. The move higher however has been supported by both the 20- and 200-day moving average, and a confirmed break of the 50-dma, currently at 1.2137 could see the pair test Tuesday’s 1.2204 high.


GBP/USD DAILY PRICE CHART – MARCH 16, 2023


RETAIL TRADE DATA PAINTS A MIXED PICTURE

Retail trader data show 56.52% of traders are net-long with the ratio of traders long to short at 1.30 to 1.The number of traders net-long is 11.56% higher than yesterday and 34.88% lower from last week, while the number of traders net-short is 23.36% lower than yesterday and 12.54% higher from last week.


We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall. Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/USD trading bias.


DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.


Written by Diego Colman, Contributing Strategist for DailyFX.com

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