The British pound has posted sharp gains on Monday, after falling below the symbolic 1.20 level on Friday. In the European session, GBP/USD is trading at 1.2026, up 0.72%.
In the UK, the economic calendar is unusually quiet this week, with no tier-1 releases. There will be a host of BoE members speaking, including BoE member Broadbent today and Governor Bailey and Chief Economist Pill later in the week. The BoE is widely expected to raise rates by 0.25% at the March 23 meeting, which would bring the cash rate to 4.25%. The UK economy appeared to be well on its way toward a recession, and the BoE signalled at the February meeting that it was considering easing up on the pace of rate hikes due to the slowing economy.
The central bank may have to reconsider its policy after strong economic data was released last week. Services PMI climbed back into expansion territory in January, rising from 48.7 to 53.3. As well, GfK consumer confidence for February improved to -38, up from -43 a year prior. Although consumer confidence remains deep in negative territory, this was the strongest release since April 2022. The improvement in economic activity has caused the markets to fully price in 0.25% hikes in March and May, with a 33% likelihood of the cash rate rising to 5% in August.
The UK left the EU in January 2020, but the vexing problem of the Northern Ireland border has continued to create friction between London and Brussels. There are hopes that the sides will announce as early as today that progress has been made, with speculation that a deal is very close to being reached. An agreement would be a massive victory for UK Prime Minister Sunak, who has been dealing with a lackluster economy and public worker strikes.
GBP/USD Technical
- GBP/USD is testing resistance at 1.2006. The next resistance line is 1.2082
- 1.1958 and 1.1864 are providing support
