British Pound (GBP/USD) Analysis and Charts

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Recommended by David Cottle Get Your Free GBP Forecast The British Pound clawed back a little ground against the United States Dollar on Monday as some surprise strength in domestic manufacturing shadowed that seen across the Atlantic.

However, Sterling remains below last week’s trading range against its big brother, having been knocked below it on Monday by some surprisingly strong economic data from the world’s biggest economy. The heavyweight Institute for Supply Management manufacturing index rose to 50.3 in March, from February’s 47.8. This was not only above market expectations but also the first print above the key 50 level since September 2022. It takes an over-50 reading to signify overall expansion in the sector.

The US Dollar gained generally from this, with its performance against the Pound no exception. However, Tuesday’s GBP/USD bounce came after the broadly equivalent UK Purchasing Managers Index was also found to have topped 50, in this case for the first time in twenty months.

The Dollar remains firmly in control this week, with most of the week’s major scheduled trading cues likely from that side of the pair. Chair Jerome Powell heads a well-padded list of speakers from the Federal Reserve. Markets know the US central bank is in no hurry to start cutting interest rates but will want to know whether recent signs of economic strength might slow the process even further. The Dollar is likely to find broad support at least until markets have an answer.

The week will end with the US nonfarm payrolls release. March is expected to have seen 200,000 new jobs created, keeping the unemployment rate at 3.9%.

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The very broad trading range seen since late November is starting to look more like a plateau on the path lower, even if, of course, that is far from confirmed so far.

The downtrend channel from the highs of March 8 looks far more solid, at least in terms of its lower bound and, if Sterling bulls can’t keep prices above that, a test of important retracement support at 1.2510 looks likely in the coming weeks. A durable break below that will take GBP/USD back into territory not seen since the end of last year and is likely to signal heavier falls.

For now, near-term resistance comes in at March 25’s opening low of 1.25894, with some pause in the downtrend likely of bulls can force the pace above this level.

Channel support lies at 1.25090.

IG’s sentiment index finds traders heavily net long at current levels, to the turn of some 65%. This might well argue for a bearish, contrarian play.

--By David Cottle for DailyFX