GBP/USD Retreats as US Pledges Increased Financial Backing for Mid-Sized Banks

Posted Monday, March 27, 2023 by
Arslan Butt • 2 min read
The GBP/USD pair relinquished its earlier gains and slid close to 1.2230 during the Asian trading session. The Cable felt pressure after failing to surpass the immediate resistance at 1.2250, as the US Dollar Index (DXY) demonstrated a modest recovery following a steady decline.

The USD Index made an effort to rebound from 103.00, as the United States administration’s pledge to extend more financial assistance to mid-sized banks boosted market participants’ confidence. Bloomberg reported that US authorities are considering broadening the emergency lending facility to offer banks greater support and give First Republic Bank additional time to strengthen its balance sheet.
S&P500 futures saw notable gains after a positive week, fueled by expectations that emergency lending support for mid-sized banks would create opportunities for more business. Additionally, increased financial support for smaller US banks after dwindling deposits following the banking crisis would help restore consumer confidence.

Conversely, conflicting opinions from Federal Reserve (Fed) policymakers on the US recession are influencing decision-making. Minneapolis Fed President Neel Kashkari stated on Sunday, “Recent stress in the banking sector and the possibility of a follow-on credit crunch bring the US closer to recession.”

However, Atlanta Fed President Raphael Bostic informed NPR on Friday that there are evident signs of a safe and resilient banking system. Fed Bostic does not anticipate an economic recession.

In the United Kingdom, the Pound Sterling remained active on Friday after strong Retail Sales data. Monthly Retail Sales (Feb) data surged by 1.2%, exceeding the expected 0.2% and the previous release of 0.9%. UK’s annual Retail Sales data contracted by 3.5%, while analysts had forecasted a 4.7% contraction. This suggests that the Bank of England’s (BoE) rate-hiking phase will persist for an extended period.

GBP/USD Technical Outlook

The GBPUSD pair has reached the intraday bullish channel’s support line and currently hovers around that level. The EMA50 coincides with this support, further reinforcing it, while the stochastic indicator now displays a positive crossover.

As a result, we believe there is a strong possibility for the anticipated bullish wave to resume on both the intraday and short-term basis, with the next primary target situated at 1.2440. To bolster the likelihood of continuing the expected bullish trend, the price must surpass 1.2290. It is important to note that a breach of 1.2220 would halt the proposed rise and put pressure on the price to shift to a decline.

Today’s anticipated trading range is between 1.2160 support and 1.2320 resistance.

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