The GBPUSD currency pair traded in a flat range with an upper boundary of 1.275 and a lower boundary of 1.262 for the whole of January. Last week, the attempts of the bulls to break through towards higher levels failed again, and now we are witnessing a downward reversal. Unlike other leading currencies, the pound against the dollar has hardly declined since the beginning of 2024, and this puts the British currency in a vulnerable position before the main events of the current week.
The Bank of England, as in the case of the Fed, is not expected to change its monetary policy at its next meeting on February 1. Nevertheless, Barclays analysts predict softening rhetoric of British officials. In particular, 3 out of 9 members of the Monetary Policy Committee, who previously voted in favor of continuing the cycle of rate hikes, are unlikely to adhere to such a hawkish position.
The data published on Monday are in favor of this scenario. The British people’s expectations of inflation for the year ahead fell from 3.9% to 3.5%. Citibank economist Benjamin Nabarro believes that the price growth target of 2% will be achieved as early as in the 2nd quarter of this year. The recent statistics on the labor market also indicates that the economy is cooling. Job openings fell by nearly 7%, the strongest monthly decline since June 2020.
Reuters analysts point to the high risk for holders of long positions on the pound. According to their estimates, now the net long position of market participants on the British currency is at a maximum for 4 months. Because of this, the potential for further strengthening of the pound has decreased, and the number of potential sellers of the British currency, on the contrary, has increased significantly. In such a situation, it is unlikely to count on a significant growth of GBPUSD.
The main scenario for GBPUSD in the short term is a decline to the lower boundary of the flat at 1.262. This tactic has already worked in mid-January, and now the chances of success are also very high.
Consider the following trading strategy:
Selling GBPUSD at the current price. Take profit – 1.262. Stop loss – 1.275.
Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion