UK Data Empowers Sterling, FOMC Minutes Near

GBP/USD – prices, charts and analysis

• The UK data supports the British pound.
• The FOMC minutes will be released later in the meeting.

Most read: British Pound (GBP) Latest – GBP/USD slumps, a casualty of US dollar strength

The British Pound is trading either side of 1.2100 against the US Dollar on the back of better than expected data this week. While the US dollar is also strong, helped by rising US Treasury yields, sterling is gaining against its counterpart across the Atlantic and against a broad range of other G7 currencies. The latest UK PMIs beat forecasts and showed that UK business activity, particularly in the services sector, rebounded sharply in February, while the latest look at government books showed that public sector net borrowing (PSNB) was boosted by better-than-expected taxes Income and surplus in January.

The latest data suggests the UK economy could be improving, giving the Bank of England more leeway to hike interest rates. UK inflation is on the way down but at current levels of 10.1% it is well above the Bank of England’s (BoE) mandate of around 2%. Inflation is expected to fall quickly in the coming months, according to the BoE, as energy prices and the cost of imported goods fall, while the UK consumer has less disposable income to spend on goods and services. The UK central bank will hike rates by 25 basis points to 4.25% at the March meeting and a further 25 basis points in the second quarter. If growth continues and inflation falls in line with BoE expectations, there could be grounds for a UK interest rate cut in Q4.

The US dollar has been the Cable’s main driver over the past few months as the greenback pushed higher on a string of aggressive US rate hikes. The US Dollar Index is less than 40 pips away from making a fresh multi-week high as US yields continue their recent rally amid a hawkish US Federal Reserve.

US Dollar Index (DXY) daily chart – February 22, 2023

Today’s FOMC minutes, due to be released at 19:00 GMT, will show the extent of the Fed’s dovish outlook. Recent Fed commentary has been heavily biased towards higher rates for longer, with some participants suggesting that a 50 basis point hike was discussed at the last meeting.

For all market moving data releases and events go to DailyFX economic calendar

The GBP/USD daily chart shows that the pair is caught between the 20-, 50- and 200-day moving averages and neither in the overbought nor oversold territory. Recent double top around 1.2450 is unlikely to be tested in the near term as 1.2270 and 1.2290 offer resistance. 200-dma at 1.1934 should act as a brake in case of sell-off.

GBP/USD daily chart – February 22, 2023

All charts via TradingView

Retailers are trimming longs

Retailer data shows that 49.78% of traders are net long, with the ratio of traders short to long being 1.01 to 1. The number of traders net long is 14.74% lower than yesterday and 2.03% higher than last week, while the number of traders net short is 7.69% higher than yesterday and 8.16% higher higher than last week.

We typically view crowd sentiment as contrarian and the fact that traders are net short suggests GBP/USD prices could continue higher. Traders are further net short than yesterday and last week and the combination of current sentiment and recent changes gives us one stronger GBP/USD bullish contrarian trading bias.

What is your opinion on the British Pound – bullish or bearish? You can let us know using the form at the bottom of this article or contact the author via Twitter @nickcawley1.