GBP Breaking Out

The British Pound is attempting to breakout against the US Dollar with GBPUSD currently testing YTD highs. USD has moved lower recently in line with worsening US economic data and the view that the Fed might cut rates as soon as June. Friday’s US labour market readings showed a sharp drop in wages growth along with a .2% rise in the unemployment rate. While the headline NFP came in above forecasts, prior revisions raised questions over the quality of the data and did little to help USD rally. The view now is that the US economy is on the turn and the Fed will likely be forced to cut rates in H1.

Fed/BOE Divergence

In contrast to that view, the outlook on the UK economy has improved recently and traders now expect the BOE to hold off cutting rates until at least August, creating some near-term divergence between the Fed and the BOE. Last week, the UK chancellor of the Exchequer unveiled a budget of increased tax cuts, aimed at fuelling growth. Indeed, the latest outlook from the government now projects weaker inflation and stronger GDP growth in the UK for this year and next.

What to Watch This Week

Looking ahead this week, traders will firstly be watching UK labour market data tomorrow followed by US CPI. If UK data meets consensus but US data undershoots, this will be firmly bullish for GBPUSD through the rest of the week.

Technical Views

GBPUSD

The rally in GBPUSD has seen the market breaking out above the bear trend line from 2023 highs and above the prior YTD 1.2823 highs. With momentum studies bullish, the focus is on a continuation higher with 1.2992 the next target for bulls. To the downside, 1.2612 remains key support.