The GBP/USD has been one of the top performers over the last month or so. We are now back at highs not seen since pre-Brexit. So why are we on this upward course?
The first reason is that Brexit negotiations are continuing and there is optimism around. In truth, the market is probably pricing in the most optimistic outcome for the UK, which is potentially a little dangerous. There are still a number of issues that are unaccounted for.
Secondly, there is growing expectation of rate hikes ahead. Most analysts are looking at the next hike being in May, and we are starting to price that in.
However, we have to still get a clearer picture on the state of the economy. Today we see the release of UK Inflation, which is a massive number in the context of the GBP.
The forecast rate of 2.7% is actually strong in and of itself and more than enough to keep the BOE happy. However, there were some weak wage numbers yesterday.
The big resistance level that we are all watching is this 1.4350 region. That marks a top that has been hard to crack and our first attempt got knocked back down to earth.
The GBP strengthen has also been helped by a less than impressive USD, which continues to decline, despite a number of reasons why it should perhaps be on the rise. But of course, opinion means little.
If we get a strong result in today’s CPI print then we might have a strong run at taking out this level. However, I think we need to remain cautious as I wouldn’t like to be pinning my hopes on the political process that is involved with the Brexit negotiations.
And by the looks of things, this rate hike is well and truly being priced in.
GBP/USD – 240 min Chart.