GBP/USD: what influenced the dynamics of the pound?

GBP/USD, currency, GBP/USD: what influenced the dynamics of the pound?

Yesterday Monday was a "black day" for sterling. GBP/USD plummeted from 1.0795 to 1.0365, losing more than 4%. The stock reached the historical lows, keeping the potential to fall to the parity level.

That was the traders' reaction to the growth of the British budget deficit due to tax cuts and extra expenses.

The speech of the British Minister of Finance Kwasi Kwarteng with the announcement of the measures launched by the authorities to stabilize the economic situation added to the negativity. In particular, the government decided to reduce duties that will cost the treasury £72 billion. It is noteworthy that to compensate for these losses it was decided to reduce the unemployment benefits on which now exists a significant part of the population.

Initiatives of the authorities provoked a new wave of capital overflow into protective assets, as investors are hedging on forex. The pressure on sterling was leveled only after the intervention of the Bank of England, which hinted at the possibility of currency intervention.

Apart from political factors, strengthening dollar also put pressure on GBP/USD. The Fed is pursuing an ultra-tight monetary policy and experts believe it will hold another rate hike of 75 basis points on November 2.

Analysts believe the Fed Funds rate will reach 4.75-5.00% in the first quarter of 2023, which leaves the dollar as the most promising currency.

Despite the upward retracement, we believe that the downtrend of GBP/USD is still in force and we suggest placing a pending order

Sell-stop 1.0750 take-profit 1.0500 stop-loss 1.0820


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EUR/USD: demand for the euro is declining
EUR/USD, currency, EUR/USD: demand for the euro is declining FOREX Fundamental analysis for EUR/USD on May 30, 2024Each economic cycle has unique characteristics that require investors to be prepared for frequent changes in sentiment on financial markets. Usually, the Fed slowly raises rates so as not to harm the economy, and quickly lowers them, thereby supporting the economic recovery. This time, the situation is the opposite: derivatives do not expect the Fed to ease monetary policy at the next three meetings. This creates a solid foundation for the growth of Treasury bond yields and restrains the EUR/USD bulls.The Fed is forced to fight not only inflation, but also the growing budget deficit, which in itself is an inflationary factor. The Congressional Budget Office estimates that the deficit will grow from 5.6% to 6.1% of GDP in the next decade, and the national debt will step from $28 trillion to $48 trillion. This is not surprising, since neither Republicans nor Democrats intend to abandon fiscal policy incentives.All of this has its price. The Ministry of Finance is actively issuing bonds, but demand for them remains low. The last three auctions have shown weak buyer activity, which forces profitability to grow. This, in turn, leads to a fall in US stock indices and creates unfavorable conditions for the strengthening of EUR/USD.Markets are increasingly convinced that in a stable economy and colossal government spending, the Fed will not rush to raise rates. The chances that they will remain at the level of 5.25-5.5% in September have again exceeded 50%.Market sentiment is so dependent on the Fed's actions that they ignore other important factors. For example, the growth of consumer confidence in Germany and the acceleration of German inflation in May from 2.4% to 2.8%, which is higher than Bloomberg forecasts of 2.7%. It is believed that these changes are caused by temporary factors, so the ECB will not change its plans to reduce the deposit rate in June.The stimulating fiscal policy of the United States, the reluctance of investors to purchase government bonds at current yields, the strong American economy and the need for the Fed to keep the federal funds rate at a high level create ideal conditions for a decrease in EUR/USD. The main currency pair was under pressure from rising Treasury bond yields and falling stock indices, which indicates a deterioration in global risk appetite and supports the US dollar through currency correlation.I believe that only an increase in the number of applications for unemployment benefits and a more significant slowdown in PCE than expected can slow down the EUR/USD bears. If buyers manage to raise the quotes above 1.08, it will be possible to consider buying opportunities. Otherwise, the pair may fall to the area of 1.07-1.073.
May 30, 2024 Read
DXY: Dollar index recoups losses
US Dollar Index, index, DXY: Dollar index recoups losses Trading idea for the Dollar Index (DXY) on May 29, 2024The dollar index (DXY) is trading at 104.54 on Wednesday, showing mixed dynamics, after yesterday's growth momentum, when the dollar rebounded from the local low on May 20 at 104.24.Buyers of the US currency continue to doubt that the Federal Reserve System (FRS) will begin to reduce the interest rate at the September meeting. These doubts are caused by the uncertainty surrounding the disinflation process. Despite the slowdown in the consumer price index (CPI) in April after three months of growth, Fed officials believe that this decline is not a long-term trend. Yesterday, the president of the Federal Reserve Bank of Minneapolis, Neil Kashkari, noted that the US economy remains stable, and there is no need to rush to lower rates. In his opinion, it is necessary to see a stable slowdown in inflation over several months in order to be sure that price pressure will return to the target level of 2%. Neil Kashkari also stressed that the Fed should not rule out the possibility of a repeat cycle of monetary policy tightening. Against this background, the yield of 10-year US Treasury bonds updated local highs by 4.57%, which allowed the dollar index to strengthen its positioning among other forex currency indices.This week, investors will be closely watching the April data on the basic personal consumption expenditure (PCE) price index in the United States, which will be published on Friday. This indicator is a key indicator for the Fed's inflation assessment. The index is expected to remain at 2.8% in annual terms. A steady rise in inflation will increase the likelihood of interest rates remaining at high levels. At the same time, if the data exceeds expectations, the dollar may resume a bullish rally. In this context, the dollar index retains the strengthening potential, which may be realized before the end of this week.Recommendation: open long positions on DXY when the 104.70 level breaks up with a target of 106.00 and a stop loss at 104.30.
May 29, 2024 Read
USD/CHF: Fed may return to raising rates
USD/CHF, currency, USD/CHF: Fed may return to raising rates USD/CHF analysis on May 29, 2024USD/CHF continues the weak downward movement that began last week, when the asset retreated from local highs for May 2. The pair is currently testing the 0.9125 support for a downside breakout. At the same time, trading activity in the market remains low, as traders are waiting for new drivers to appear.Today, the US will publish data on the retail sales index from Redbook for the week ended May 24, as well as the index of business activity in the manufacturing sector of the Federal Reserve of Richmond, which may rise from -7.0 to -2.0 p. In addition, at 20:00 (GMT+2), the monthly economic review from the US Federal Reserve, known as The Beige Book. On Thursday at 14:30 (GMT+2), GDP data for the first quarter is expected, which, according to forecasts, will show a decrease in the annual rate from 1.6% to 1.3%, which may affect the course of the Fed's monetary policy. On Friday, investors' attention will be focused on the April statistics on the price index of personal consumption expenditures, where the base indicator is expected to remain unchanged at 0.3% on a monthly basis and 2.8% on an annual basis. Neil Kashkari, President of the Federal Reserve Bank of Minneapolis, said that the Fed should wait for more significant progress in reducing inflation before starting a cycle of monetary expansion. He also noted that if inflation accelerates, the Fed may return to tougher rhetoric.Today at 10:00 (GMT+2) in Switzerland, the May statistics on the index of economic expectations from the Center for European Economic Research (ZEW) will be published. The previous indicator was revised from 11.5 to 17.6 points. On Thursday, investors will follow the speech of the head of the Swiss National Bank and GDP data for the first quarter, which are projected to remain at the same level (0.3% quarterly and 0.6% annual), which may support the Swiss franc.The main forex indicators on the daily chart do not give unambiguous signals. Bollinger bands are trying to turn into a horizontal plane. The MACD is declining, signaling sales. Stochastic, having bounced off the maximum values, is steadily moving down.Long positions can be opened after a confident breakout of the 0.9130 level. The nearest target is 0.9175. We will set the stop loss at 0.9100.A rebound from the 0.9130 level and a subsequent breakdown of the 0.9100 mark down may be a signal to form short positions with a target of 0.9037. We place the stop loss at 0.9130.
May 29, 2024 Read
Forex analysis and forecast for GBP/USD for today, May 29, 2024
GBP/USD, currency, Forex analysis and forecast for GBP/USD for today, May 29, 2024 In Asian trading on Wednesday, GBP/USD is trading around the 1.2752 mark, working out a downward correction after updating local highs for March 21. Traders are closing some long positions ahead of the publication of April inflation statistics in the United States.Data on the personal consumption expenditure price index, which is a key indicator for the Fed in determining the course of monetary policy, is expected on Friday. Analysts do not expect big changes compared to the March data, when the base indicator grew by 0.3% on a monthly basis and by 2.8% on an annual basis. At 14:30 (GMT+2), investors will evaluate data on personal income and expenses for April: income growth is expected to slow from 0.5% to 0.3%, and expenses from 0.8% to 0.3%. In the UK, statistics on consumer lending will be released at 10:30 (GMT+2). Volumes are likely to decrease from £1.577 billion to £1,500 billion in April, and net consumer lending may increase from £1.8 billion to £2.0 billion pounds. The number of approved mortgage applications, according to Nationwide Building Society, will grow from 61,325 thousand to 61,500 thousand.So far, market participants are focusing on May retail price data from the British Consortium of Retailers (BRC): prices in the largest stores increased by 0.6% after an April decrease of 0.8%, which is the lowest pace in the last two and a half years. The cost of non—food products fell by 0.8%, and food products - by 3.2% from 3.4%. Experts of the consortium expect that inflationary pressure in the country will continue to weaken, and consumer sentiment will improve.On Thursday at 14:30 (GMT+2), GDP data for the first quarter will be published in the United States: the annual rate is projected to decrease from 1.6% to 1.3%, which may increase pressure on the US Federal Reserve to ease monetary policy.Technical analysis for GBP/USD for todayThe Bollinger Band indicator on the daily chart shows active growth. The MACD indicator is rising less actively, but retains a buy signal. The Stochastic oscillator, approaching the 80 mark, is trying to turn down.Short positions can be opened after a confident breakdown down to the level of 1.2734. the target is located at 1.2650. We set the stop loss at 1.2771.A rebound from the 1.2734 level and an upward breakout of the 1.2771 resistance may be a signal for the formation of long positions with a target of 1.2850. In this case, we will set the stop loss to 1.2734.
May 29, 2024 Read
EUR/USD: dollar is generous with surprises
EUR/USD, currency, EUR/USD: dollar is generous with surprises FOREX Fundamental analysis for EUR/USD on May 29, 2024If the market reacts so violently to news of the first increase in consumer confidence in the United States in four months, then everything is not so bad for the dollar. In May, the index soared from 97.5 to 102, surpassing all forecasts of Bloomberg experts, and the previous data were revised upwards. An even bigger blow to the EURUSD bulls was caused by an increase in inflation expectations from 5.3% to 5.4% and an increase in the share of respondents expecting a rate hike from 55.2% to 56.2%.Neil Kashkari, President of the Federal Reserve Bank of Minneapolis, stressed that the possibility of raising the federal funds rate is still being considered. According to him, the chances of this are low, but no one is ready to completely rule out such a scenario.These statements, together with unexpectedly strong consumer confidence statistics and weak auction results for the placement of 2- and 5-year US Treasury bonds, led to an increase in treasury yields. Rates have returned to the levels from which they began to fall after the April report on the US labor market. The probability of monetary expansion in September decreased to 44%, and the scale forecast decreased to 34 bp.The Fed has no plans to cut rates, and the US economy is not going to slow down. In such circumstances, selling the American dollar is not the best forex trading strategy. The inability of the EURUSD bulls to update the May high indicates their weakness. The rapid reaction of the market to data on consumer confidence in the United States shows that investors are not sure about the reversal of the downtrend for the main currency pair. The dollar will still fight!In addition, unlike in the United States, European inflation expectations continue to decline. In April, the 12-month indicator sank from 3% to 2.9%. This increases the chances of a rapid return of inflation to the 2% target and paves the way for further cuts in the ECB deposit rate after the first step in June.However, despite the temporary retreat of EURUSD buyers, there is no reason to worry. The global economy has noticeably strengthened compared to last year. This is confirmed by the increase in the IMF's forecast for China's GDP for 2024 from 4.6% to 5%. If in 2022-2023 American exceptionalism helped the US dollar strengthen, now the synchronization of global economic growth creates favorable conditions for pro-cyclical currencies such as the euro and the pound.The future fate of EURUSD will depend on the new data. According to John Murphy's technical analysis, a correction of the pair to 1.08 and below is possible. However, if the bulls recover quickly and return quotes above 1.086 and 1.0885, this will be a signal to buy the pair.
May 29, 2024 Read
EUR/USD: buy euros and remember the dollar
EUR/USD, currency, EUR/USD: buy euros and remember the dollar FOREX Fundamental analysis for EUR/USD on May 28, 2024EUR/USD sellers hoped that the earlier easing of the ECB's monetary policy compared to the Fed and its significant scale would create a significant advantage for the dollar. However, Philip Lane, the ECB's chief economist, thinks otherwise. In his opinion, a significant weakening of the euro is necessary to accelerate inflation in the Eurozone, which is unlikely due to the narrowing of the gap in economic growth between the United States and the Euro Bloc. This statement caused confusion in the pro-dollar camp.Last week, slowing inflation and disappointing retail sales data turned asset managers and hedge funds away from the dollar. Their combined net long position on the US dollar against major world currencies of $2.02 billion was transformed into net shorts of $5.36 billion. Commonwealth Bank of Australia predicts that these positions will increase as the date of the first Fed rate cut approachesInterestingly, the largest capital inflows from leaving the dollar are directed to the pound and the euro, which are pro–cyclical currencies that benefit from synchronizing the growth of the global economy and reducing the influence of the factor of American exceptionalism.Philip Lane's comments had a greater impact on positioning in forex currency trading than the slowdown in the German business climate according to the IFO, indicating that the cyclical bottom of the German economy will not be followed by an automatic strong recovery. And, even more important than the "dovish" rhetoric of the head of the Bank of France, Francois Villaroy de Galo, who does not rule out a further reduction in the deposit rate in July after the June expansion.Philip Lane noted that the slowdown in the Eurozone economy is due to the negative impact of the war in Ukraine and the energy crisis, which the United States did not feel. He believes that the rapid decline in European inflation to the target level of 2% indicates the effective work of the ECB. This calls into question the effectiveness of the Fed and is bad news for the EUR/USD bears.The ECB's further plans after the June rate cut will depend on the data. Lane said that if inflation starts to accelerate, monetary policy easing will be slower. In the context of the increase in consumer price growth in the Eurozone predicted by Bloomberg experts in May, this statement looks like a call for EUR/USD bulls to take action.Recently, the futures market was confident of three acts of ECB monetary expansion in 2024, now only two are expected. The divergence in the monetary policy of the Eurozone and the Fed is not so significant as to stop the EUR/USD rally. Our forex trading strategy is the same - we buy and increase long positions formed from the levels of 1,073 and 1,083. The goal remains the same – 1,108.
May 28, 2024 Read
EUR/USD: the European currency is becoming more attractive than the dollar
EUR/USD, currency, EUR/USD: the European currency is becoming more attractive than the dollar FOREX Fundamental analysis for EUR/USD on May 27, 2024Analysts assume less synchronization of the monetary policy of the world's central banks compared to previous cycles. But if the US GDP continues to slow down, and in Europe, on the contrary, economic growth continues, the European Central Bank (ECB) after June. This opinion is supported by ECB officials from Germany - Isabel Schnabel and Joachim Nagel, who are not inclined to raise rates again in July, especially against the background of an increase in average wages in Germany by 6.1%. Their reluctance may play into the hands of EUR/USD.A split is growing within the ECB. The hawks are in no hurry to cut rates at each meeting, while the doves argue that it is not worth paying much attention to the 4.7% increase in wages in the Eurozone in the first quarter, considering this increase to be a temporary phenomenon caused solely by German factors. In the rest of the countries of the currency bloc, wages are slowing down.However, if European inflation starts to accelerate in April, as Bloomberg experts predict, the issue of a rate cut in July may be closed. There are rumors that the ECB hastened with the latest rate hike in the fall of 2023, raising it from 3.75% to 4%. Perhaps an adjustment will follow in July, after which Christine Lagarde and her colleagues may take a break, waiting for action from the Fed.Meanwhile, the Fed may take action sooner than expected. It seems that FOMC officials have convinced the futures market that the probability of reducing the federal funds rate from 5.5% to 5.25% or lower is less than 50%, although it was recently estimated at 70-75%.For this, the EUR/USD bulls should thank inflation. Bloomberg experts predict a further decline in the growth rate of PCE. And, if the forecast is confirmed, the US dollar may lose its position in forex currency trading.In short, the euro is approaching the beginning of summer with optimism. American inflation is slowing down, while European inflation may accelerate, creating a divergence on which to trade. Moreover, monetary divergence in trading is a long–term factor. It is also expected that the revised US GDP data for the first quarter will show growth of 1.5%, rather than 1.6%, as previously expected, while positive signals are expected from the German business climate, according to IFO data. This reduction in the difference in economic growth is a good reason to buy a single currency.However, do not forget about the postulate "buy on rumors, sell on facts." If EUR/USD rises on the eve of important releases, a wave of sell-offs on the actual data may follow. Nevertheless, after the return of the main currency pair above 1.083, the sentiment remains bullish. While EUR/USD is trading above this level, the focus should be on long positions.
May 27, 2024 Read
EUR/USD: dollar is rising, but the euro is catching up
EUR/USD, currency, EUR/USD: dollar is rising, but the euro is catching up FOREX Fundamental analysis for EUR/USD on May 24, 2024Recently, investors have been too often faced with the cyclical nature of historical processes. At the end of 2023, they were confident that US GDP growth would slow down, which caused expectations of six acts of monetary expansion from the Fed in 2024, and led to a fall in the US dollar. In mid–April -May, the dollar was again under pressure due to signs of a cooling economy. However, by the end of spring, the situation had changed. The unexpected improvement in US macro statistics, as in the first quarter, put pressure on EUR/USD.The total US PMI rose to 54.4, the highest level in the last two years. S&P Global noted that inflationary pressures come from manufacturing, not services, which indicates price stability and reduces the likelihood of a federal funds rate cut in 2024. The head of the Federal Reserve Bank of Atlanta, Rafael Bostic, believes that monetary policy has not been effective enough, so it is necessary to keep rates at 5.5% for a long time.Add here the fastest reduction in initial applications for unemployment benefits in the United States since September, and the fall in EUR/USD becomes clear. Right now, the good news for Forex is turning out to be bad for the stock market. Despite the impressive financial results and the growth of NVIDIA shares, American stock indexes still declined. A dollar won from this.Can this bring back the theme of American exceptionalism to forex currency trading? I think it's worth cooling the ardor of the EUR/USD bears a little. Unlike at the beginning of the year, global economies are also showing acceleration. Business activity in the Eurozone is increasing at the fastest pace in a year, India is experiencing rapid growth, and Japan is recovering. The idea of synchronizing global economic growth remains relevant, which makes the positions of pro-cyclical currencies, including the euro, more stable compared to the beginning of 2024.In addition, wages in the Eurozone increased from 4.5% to 4.7%, which creates obstacles for the ECB's "pigeons" demanding a reduction in the deposit rate in June and July. However, the head of the Bank of France, Villeroy de Galo, argues that there is no need to panic, since wage growth is temporary and is solely due to data from Germany, while in the rest of the Eurozone it is slowing down.Which will be the winner – American exceptionalism or the synchronization of global economic growth? If the GDP of the United States and the Euroblock grow at the same pace, this will lead to a medium-term consolidation of EUR/USD. Otherwise, the idea of slowing the American economy and closing the gap in GDP growth may restore the upward trend of the pair.New data is needed for further Forex forecasts. If EUR/USD fails to stay above 1.08, the risks of falling to 1.076 and 1.071 will increase. On the contrary, a successful consolidation of the asset above 1.083 will return buyers to the market.
May 24, 2024 Read
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