Market Analysis

GBP/USD to Break Higher if 1.42 Breached

GBP price, news and analysis:

  • This month’s rally year GBP / USD is likely to persist if and when it breaks resistance at the 1.42 level and slightly above it.
  • Market prices show that the Bank of England will raise its key interest rate by June next year, which will help raise the level of the euro area British pound.
  • Moreover, the latest public lending figures for the United Kingdom suggest that borrowing is set to decline after higher growth in the past.

GBP / USD are favorable for profit expansion

GBP /USD seems to be continuing this month, but only if it can permanently prevent psychological resistance at level 1.42. As the chart below shows, it broke briefly above 1.42 on Tuesday last week and again on Friday, with Friday’s highest value of 1.4234 being the next level of resistance above the round number to be observed.

GBP / USD price chart, two-hour schedule (May 2 – 25, 2021)

Pound sterling (GBP) price outlook: GBP / USD will break higher than 1.42

Source: IG (Click for a larger image)

Behind the sterling’s move, there is speculation that the Bank of England is worried about inflation enough to raise the bank rate by a quarter of a percentage point by mid-next year. Market prices point to a quarter-point increase by June 2022 and a further increase a year later in June.

This is despite BoE Governor Andrew Bailey telling lawmakers on Monday that the expected price increase this year is likely to be temporary. One of his deputies, Jon Cunliffe, said that inflation would recover later when the central bank reaches the 2% target if growth slows down.

The volume of public lending in the United Kingdom is declining

Meanwhile, the latest data on UK public sector borrowing released at the beginning of this session showed a fall in net debt from loans to £ 31.7 billion in April, following a revised decline of £ 26.3 billion last month. It is now clear that borrowing will fall after its strong growth since the start of the coronavir pandemic as the government increased spending to dampen the negative economic impact of Covid-19.

For this session, BoE Silvana Tenreyro’s performance is scheduled for 1700 local time, but it is unlikely to move the markets, as she will almost certainly stick to the script prepared by Bailey and Cunliffe.

– Written by analyst Martin Essex

Feel free to contact me on Twitter @MartinSEssex

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