08.04.202208:55 Forex Analysis & Reviews: GBP/USD remains in shadow

This week, the pound sterling was in the shadow of the US dollar and the euro. Its trajectory was sometimes influenced by these currencies. The reaction of the pound sterling to geopolitical news is moderate.

This week, the pound sterling was in the shadow of the US dollar and the euro. Its trajectory was sometimes influenced by these currencies. The reaction of the pound sterling to geopolitical news is moderate.

Analysts believe that the instrument is unable to assert strength due to the greenback's rally. It keeps the GBP/USD pair in the shadows. The hawkish comments of the Fed policymakers about the possibility of a 50 basis point tare hike as soon as May facilitated a further rise of the US dollar. As a result, the Fed's aggressive stance left the pound sterling no chance to rebound.

At the same time, demand for the pound sterling as a safe-haven asset remains buoyant amid the Russia-Ukraine conflict and concerns about slowing economic growth in the eurozone. However, even this factor did not help the British currency to resume an upward movement.

Economists at UOB Group reckon that in the near future, the pound sterling may sink deeper and try to test again the 1.3000 level. On April 7, the price rose slightly, reaching 1.3086 compared to 1.3069 logged on Wednesday. On April 8, the GBP/USD pair was trading at 1.3063, trying to approach new peaks.

For the past five days, the GBP/USD pair has been steadily declining. Bears took the upper hand after the pair failed to consolidate above the 1.3100 level. This is why the pair is likely to be trading with a bearish bias in the short term. At the same time, there is a slowdown in the downward movement and the consolidation of the GBP/USD pair in the range of 1.3050–1.3060. Analysts consider 1.3050 a static support level, while 1.3000 is a psychologically important level for the further development of the upward movement.

The pair also struggles to assert strength because of comments made by the Bank of England. The watchdog is uncertain whether the current aggressive policy is relevant. Earlier this week, Jon Cunliffe, the Deputy Governor for Financial Stability, noted that the protracted Russia-Ukraine conflict fuels inflation and shrinks the income of UK households. The politician spoke in favor of further monetary policy tightening in order to curb inflation.

Currently, the BoE policymakers doubt whether quantitative easing (QE) and rate hikes are the best tools for normalizing the economy. Nevertheless, analysts suppose that the Bank of England and the Fed are ahead of the curve when it comes to monetary policy tightening. Earlier, many BoE members said that the regulator would take drastic measures if needed.

The regulator is also sure about the stability and resilience of the national economy as it has been able to withstand the negative consequences of the COVID-19 pandemic and Brexit. At the moment, the prospects of the UK economy are rather vague. Analysts are curious whether it will remain stable and continue to expand due to geopolitical woes.