GBP/USD Turns Higher From 1.1940 As USD Loses Strength
GBP/USD was not performing great as of late due to the broad USD strength. But it seems that the GBP is finally ready to show some bullish action once again. After testing its support of 1.1940, the pair has turned bullish amid weakness in the USD. In addition, the support located at 1.1960 will also be important as it coincides with the 200 EMA.
For now, the Cable is bullish for the short-term and is trading above 1.1980, which is also its 20 EMA. But this doesn't mean that the GBP/USD will become bullish over the longer timeframes. For that to happen, we will have to wait for some more promising momentum from the bulls.
Meanwhile, the data from RSI (Relative Strength Index) based on 14 periods is in the 40-60 range. This is an indication that the GBP/USD pair will be going into consolidation.
If we talk about the fundamental data, inflation in the United Kingdom still continues to remain high. In fact, there are even no signs of it slowing down, which means more trouble for British citizens. As a result, the Bank of England will also continue its policy of higher interest rates.
High Inflation & High Interest Rates
According to JP Morgan analysts, the rate will be somewhere around 4.25% during the 1st quarter of 2023. In addition, the UK economy will also contract by around 0.6% due to the higher rates, inflation, and economic damage from Brexit. The several years-long COVID-19 has also significantly damaged the UK economy and thus will also contribute to the economic contraction.
Just a few days ago, the governor of the Bank of England made it clear that the government is not in discussions about the timing and pace of the BoE asset sales. He said that the labor market of the UK is very constrained right now, which is very different than what's happening in other countries.
If we look at the USA, the economic conditions are also any better than in the UK. So in that regard, it would be a race of which country has less worse economic conditions than the other!