20.02.202400:00 Forex Analysis & Reviews: GBP/USD: Pound awaits heated debates in the House of Commons

The GBP/USD pair remains stagnant. Monday's economic calendar is completely empty, and U.S. trading platforms are closed. The United States observed Presidents' Day, a federal holiday dedicated to the office of the president of the United States. Therefore, the GBP/USD pair is forced to trade in a narrow price range.

However, the pair has been trading on the border of 1.25 and 1.26 figures for the third consecutive week. Rare impulsive surges aside, neither buyers or sellers have been able to settle at the reached levels. Take a look at the weekly chart of GBP/USD: the pair is trapped in the price range of 1.2530-1.2650 (lower and middle lines of the Bollinger Bands indicator, respectively). The price alternately bounces off the boundaries of the range, reflexively reacting to the current information flow.

It is noteworthy that neither U.S. inflation nor British economic reports could strengthen the positions of bulls or bears on the pair. The mixed fundamental picture does not allow GBP/USD traders to determine the direction of the price movement. This situation can be resolved either by the Federal Reserve or the Bank of England. Central bank representatives with their comments can tilt the balance in favor of either the pound or the greenback.

On Tuesday, hearings on the Bank of England's monetary policy report will take place in the House of Commons of the British Parliament. Members of the monetary committee quarterly, after the report is published, appear before the Treasury Committee, where they answer questions from MPs, explaining their vision of the economic situation. They also talk about how they voted at the recent BoE meetings, if necessary, explaining their position. As part of the hearings, the leaders of the central bank will speak - BoE Governor Andrew Bailey, and his deputy, Ben Broadbent, as well as some "ordinary" members of the Committee, including Megan Green and Swati Dingra.

Briefly, I will remind you that last week a block of crucial economic data was published in the UK. According to the data, the unemployment rate in December sharply decreased to 3.8% (the lowest level since April 2023). The number of claims for unemployment benefits increased by 14,000 in January. The indicator has been rising for the second month in a row (the January result is the most negative since June 2023). The growth rate of average earnings continues to decline, but at a slower pace. Including bonus payments, the level increased by 5.8% (forecast - 5.6%). This indicator has been consistently declining for the last five months (for comparison: it was at 8.5% in July 2023). Excluding bonuses, the level of average earnings increased by 6.2% (with a forecast of 6.0%). Here, there is a downward trend for the fourth consecutive month.

Inflation also disappointed the British currency. It turned out that the Consumer Price Index (CPI) in the UK decreased by 0.6% on a monthly basis, with a forecast of -0.3%. This is the lowest value of the indicator since January 2023. In annual terms, the index reached 4.0% (forecast - 4.1%). The Core CPI also remained in the red zone: with a forecast of growth to 5.2%, the indicator remained at 5.1%. The Retail Price Index, which employers use in discussions of "salary issues," decreased significantly: on a monthly basis, it reached -0.3% (the lowest value since June 2023), and on an annual basis, it decreased to 4.9% (the weakest growth rate since October 2021).

The UK GDP report was also disappointing. The GDP in the fourth quarter decreased by 0.3% QoQ (with a forecast of a decline of 0.1%) and by 0.2% YoY (with a forecast of growth of 0.2%). The UK economy has entered a technical recession (joining Japan in the G7 club).

This will probably become the central theme at parliamentary hearings, as there is also a political context. According to the law, parliamentary elections in the UK must be held no later than January 2025. Opposition parties demand that Prime Minister Rishi Sunak appoint them as soon as possible. The head of the government is not in a hurry with this issue, but he does not plan to postpone it until the last minute - recently, he announced that the elections in Britain will take place in the second half of this year.

Therefore, there is no doubt that the upcoming discussion in the House of Commons will be 'hot.' It is necessary to recall that in one of his recent speeches, Bailey said that the central bank has moved from the question of how restrictive the policy should be to the question of how long the central bank should maintain it. Bailey may provide details on this and (probably) allow a rate cut in the second half of this year.

In this case, the pound will come under significant pressure. However, you may only consider short positions after sellers push the pound below the support level of 1.2530 (lower Bollinger Bands line on the daily chart) with a target of 1.2440 (lower border of the Kumo cloud on the same timeframe).