The Pound has spent the last month grappling with psychological resistance at 1.25 against the US Dollar and last week was no different. What can we expect from the GBP/USD pairing in the days ahead?
Psychological Resistance
Sterling rallied by around a third of a cent at the start of last week’s session thanks to a two-year high UK manufacturing print from the Confederation of British Industry (CBI). The CBI reported that factory output rose from +5 to +8 in February but it was not enough to drive GBP/USD above technical and psychological resistance.
The Pound managed to avoid defeat versus the ‘Greenback’ last Tuesday following a statement from Bank of England Governor Mark Carney, which showed little appetite for raising interest rates anytime soon. The Pound struggled following Carney’s statement but the US Dollar was also impacted by a surprise dip in services output from 55.6 to 53.9.
Hawkish Fed In Focus
The ‘Greenback’ put in a better performance on Wednesday thanks to hawkish sentiments from the Federal Reserve’s latest minutes report, with many participants expressing the ‘view that it might be appropriate to raise the federal funds rate again fairly soon’. In the UK quarterly Q4 growth was upgraded form 0.6% to 0.7% while annualised GDP was revised down from 2.2% to 2.0%. Traders were concerned by the first annual drop in business investment since 2009.
GBP/USD put in a strong performance on Thursday and Sterling rose through resistance to strike a fortnightly high versus the US Dollar. However, the move didn’t last long and the Pound declined on Friday and over the weekend as profit taking and Brexit related rumours weighed. Speculation regarding a second Scottish referendum and a loss of rights for EU workers after the British Prime Minister triggers Article 50 of the Lisbon Treaty damaged demand for the UK currency.
Week Ahead
There are a number of high profile ecostats due for release this week – UK private sector PMIs, US manufacturing output, US Q4 GDP updates, US consumer confidence and a speech from Federal Reserve Chairwoman Janet Yellen – however, the most influential event to look out for is US President Donald Trump’s first official Presidential address.
Taking place at 2am on Wednesday morning, the President’s speech has the power to drive GBP/USD sentiment over the next few months. If Trump can convince traders that his plans for taxation changes and fiscal spending can reignite the US economy then Sterling is likely to start depreciating towards 1.20. But if the President fails to impress analysts, GBP/USD could make a run for longstanding resistance around the 1.27 mark.