The British Pound (GBP) is a currency that’s been in a rut for a while now. Investors seem to have turned to the US dollar as a safe haven in the face of a slew of economic headwinds. The US Dollar (USD) is expected to be a major driver of GBP/USD exchange rate movements over the coming weeks. However, the ‘Greenback’ has been struggling to outdo its rivals.
The British Pound has been in a relatively long trading range since mid-2016. As a result, it has been hard to discern the best way to trade this particular pair. That said, there are a few things you can do to help increase your chances of a successful trade.
The British Pound has made a strong showing in recent weeks as it’s been able to leverage some of the recent weakness in the US dollar. But there are still some notable macroeconomic headwinds facing the UK economy. Combined with the lingering effects of the cost of living crisis, these could put a strain on household spending.
The Pound has also seen a bit of volatility recently. Although the pair is attempting to find its footing, it’s still trading at levels that are above the averages. A spike in the UK Retail Sales data has provided some much-needed support. Meanwhile, the prospect of a full-blown trade war has depleted market sentiment.
One thing to watch out for in the near future is the upcoming Federal Reserve meeting minutes. The Fed has hinted that it’s ready to take a pause on interest rate hikes. This could cause some havoc for the ‘Greenback’. However, it’s also likely that the rate-setters will continue to raise rates. So, the Pound is likely to remain supported.
The UK’s Autumn Budget also prompted a few reactions. While it didn’t offer any great surprises, the announcement did provide some bullish impetus to the GBP/USD exchange rate. But the government relief package did little to alleviate the concerns of investors.
The FOMC meeting also didn’t provide much joy to the currency market. The minutes were full of cautious language, which could sting the rate-setters. In the end, the Federal Reserve kept its rate hike plans intact. But this isn’t to say that the rate-setters were any less hawkish than before.
The most important thing to remember in trading is to stay focused on the fundamentals. A slew of economic figures are released each month, and they’re a key factor in determining if the pound is going to outperform. Among those are inflation and unemployment figures. If the data turns out to be on the mild side, there is a possibility that the ‘greenback’ will outperform. Similarly, if the numbers for employment data are strong, it could prompt further rate hike bets from the Fed.
The relative strength index (RSI) is currently in the midst of a recovery. The RSI has shown modest signs of resiliency in the last few months, though it still hasn’t climbed back to its apex