GBP/USD Analysis Today 16/5: Be Cautious, Overbought Levels

(MENAFN- Daily Forex)

  • Amidst a weakening US dollar, the GBP/USD currency pair surged to a resistance level of 1.2700 this morning, Thursday.
  • This is the highest level for the pair in over a month. According to Forex trading platforms, the pair's gains were driven by a weaker US dollar after federal Reserve Chairman Jerome Powell reassured that there was no imminent hike in US interest rates following a surprise surge in US producer prices in April.
  • Also, further pressure on the dollar came from a decline in US consumer prices, which weakened expectations for continued aggressive US rate hikes.

Official data showed that US CPI inflation rose 0.3% on a monthly basis in April, down from March (0.4%) and below expectations (0.4%). After three months of uncomfortable upward surprises, the softer-than-expected reading will reignite hopes that the first-quarter surge in inflation was a blip. Moreover, money market pricing shows that investors now price in around 50 basis points of US monetary easing this year (two 25-basis-point cuts), compared to just one cut a week ago. Thus, this aligns with the Fed's own dot-plot projections, which see two rate cuts this year.

In the United Kingdom, Bank of England chief economist Hugh Bell hinted at the possibility of interest rate cuts over the summer, which boosted confidence. During the last meeting, the British central bank kept interest rates steady, despite two members calling for them to be lowered, reflecting a potential move towards lower borrowing costs. Governor Bailey has suggested future interest rate cuts, with traders now seeing a greater chance of a cut in June and an expected 25 basis point cut in August.

Regarding the platforms of stock trading companies , UK stocks are trading at a record high level. Also, Britain's FTSE 100 stock index reached new highs on Wednesday, trading 0.5% higher as investors closely watched corporate announcements leading up to the release of US inflation data. Experian shares led the gains, jumping more than 8% after forecasting annual organic revenue growth of 6-8% by fiscal 2025. Conversely, Burberry shares saw a decline of almost 4% after a 34% decline in profits. Annual operating. Meanwhile, Compass shares saw a 2% decline despite slightly beating market expectations for first-half earnings.

Overall, market optimism was buoyed by Fed Chairman Jerome Powell's reassurance on Tuesday that the central bank is unlikely to raise interest rates.

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Technical forecasts for the GBP/USD pair today:

The upward trajectory of the GBP/USD exchange rate is gaining strength, and its recent gains are moving technical indicators towards strong overbought levels. Therefore, caution is advised against renewed profit-taking selloffs if the pound does not gain positive momentum alongside the current weakness of the US dollar. Obviously, it must be considered that a return to the support levels of 1.2590 and 1.2500 would end the current upward expectations for the currency pair. Today, the focus will be on the announcement of the weekly US jobless claims, as well as housing market and industrial production figures, in addition to statements from several Federal Reserve officials.

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