12.03.202400:49 Forex Analysis & Reviews: GBP/USD. A crucial week for the pound

The GBP/USD pair reached an almost 8-month price high last Friday, rising to the level of 1.2892. However, buyers found it difficult to breach the 1.29 level, as traders took profits, and the price retreated by several tens of pips. The pair started the new week by staying within the 1.28 level, amid an almost empty economic calendar and the dollar's broad weakness.

The sharp rise that we saw last week was primarily driven by the decline in the US Dollar Index, which came under pressure from Federal Reserve Chief Jerome Powell's stance and the mixed February Nonfarm Payrolls. On Monday, the greenback is trading sideways in anticipation of key inflation reports scheduled for Tuesday and Thursday (Consumer Price Index and Producer Price Index, respectively).

The British currency is also facing significant challenges. On March 12, the UK will release key labor market data, followed by GDP data the next day, March 13. Both indicators can have a substantial impact on the pound, reinforcing or weakening dovish expectations regarding the Bank of England's future course of actions.

Take note that at the end of February, BoE Governor Andrew Bailey said there had been "encouraging signs" on the key indicators in the jobs market and services prices but stressed that policymakers are looking for "sustained progress."

Speaking in the British Parliament last month, Bailey refrained from providing any hints about the timing of monetary easing. He only said that he was comfortable with investors betting on interest rate cuts this year.

According to most experts, the UK economy appears more resilient than expected. This allows the central bank to maintain a "wait-and-see" stance, keeping rates at the current level longer than many central banks of other major countries, including the Fed and the European Central Bank. Both central banks are expected to begin easing monetary policy in June. As for the BoE, the timeframe is the second half of the year. For instance, according to JP Morgan analysts, the first move will be in August. Some other experts, narrowing the second-half time frame, point to September or even November.

The UK GDP report will help move the anticipated "X-hour" closer or further away.

According to preliminary forecasts, the UK GDP in January is expected to increase by 0.2% on a monthly basis, following a 0.1% contraction in December. Quarterly dynamics are also expected to be positive, although the indicator will likely remain below zero. In November, the indicator fell to -0.4%, in December to -0.3%, and the forecast for January suggests a rise to -0.1%.

If the GDP report meets forecasts (let alone the "green zone"), the pound will receive substantial support.

The labor market data will be published on Tuesday. It is worth noting that the unemployment rate has been consistently declining for 5 consecutive months, and January could mark the sixth month in this trend. According to forecasts, unemployment will decrease to 3.7% (for comparison: in July 2023, this figure was at 4.3%). The number of claims for unemployment benefits increased by 14,000 in January. This indicator has been rising for the second consecutive month (the January result is the most negative value since June 2023). According to preliminary forecasts, this indicator is also expected to increase in February, with a monthly increase of 20,000.

Meanwhile, a downward trend is expected for salaries. Considering bonus payments, the level of average earnings should decrease to 5.7%. This indicator has been consistently declining for the past five months (for comparison: it was at 8.5% in July 2023). Excluding bonuses, the level of average earnings should decrease to 6.1%. Here, a downtrend has been observed for the fourth consecutive month, and January is expected to be the fifth month in this series.

The "green tint" of the reports will provide strong support for the British currency. Economic growth amid declining unemployment will allow the BoE not to rush into making a decision on rate cuts.

If, at the same time, US inflation reports are in the "red," GBP/USD buyers may consolidate their success not only due to the pound's strength but also thanks to the greenback's weakness.

Technically, on all higher time frames, the pair is between the middle and upper lines of the Bollinger Bands indicator. On the daily and weekly charts, the Ichimoku indicator has formed a bullish "Parade of Lines" signal, indicating a preference for long positions. The nearest target for the upward movement is the level of 1.2930 (upper line of the Bollinger Bands on the 1W timeframe). The main target is the psychologically significant price level of 1.3000.