May 30, 2023
Is the pound poised for a long-term rally?
Hot Forex Review

Is the pound poised for a long-term rally?

A week after the BoE meeting, while banking concerns are cooling down, BoE’s Baily emphasized the need to control inflation—a day ahead of his testimony before parliament on issues related to the collapse of Silicon Valley Bank. In a speech at the London School of Economics on Monday, Baily focused on the inflation fight, as the latest published data showed the UK inflation raised again in February. February inflation increased to 10.4% from 10.1% in January, while the market was waiting to see that under 10%. That made BoE raise the rates by 25 bps, and now, with these comments, the market expects at least another 50 bps rate hike before ending the cycle.

With these data and comments, while the market assures more rate hikes and hawkish policies, the pound held its gains against its rivals. Concerns about the turmoil in banking cooling down, so the Bank of England will have no issue continuing the hawkish policies, as the central bank’s governor signaled that the bank would be ready to deliver more monetary tightening if “signs of persistent inflationary pressures become more evident.”

On the other hand, analysts now have a better outlook for the British economy, which means we can again count on the Sterling’s strength in the long term, as a strong economy can also support the currency. This is while, in the short time, if BoE acts as expected, the recent retracement seen on the cable chart can be read as a return from the bottom.

From a technical point of view, after the September free-fall, GBPUSD raised in the last quarter of 2022. In 2023, Cable mostly traded in a range between 1.20 and 1.23. GBPUSD has an extreme resistance of around 1.2450, and breathing above this level will open the doors for the 1.33 area. On the flip side, which for now seems much less likely, breaching under 1.185 can change the trend; otherwise, bulls are just getting ready for a proper time to start the rally.

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