GBP/USD Daily Forecast – Sterling Bounces After Touching Six-Week Low

The pound dollar exchange rate declined to a low of 1.2941 in the early day, a level not seen since late December, but has since recovered above the 1.3000 handle.

Sellers have dominated the pair since this week’s open and yesterday’s decline served to erase the two-day rally that followed last week’s Bank of England meeting.

The decline in the currency pair began ahead of a speech on Monday from UK PM Johnson in which he laid out his plans for a trade agreement with the EU. Johnson called for an agreement similar to Canada which some consider being ambitious. The British PM appeared firm in his demands and signaled a lack of willingness to negotiate.

GBP/USD began recovering after the European open and has seen a fairly steady bid since. Technical indicators show potential for a further recovery, although yesterday’s decline has likely trapped bears that are anxious to exit, which should keep the pair well offered in the session ahead.

Survey data from purchasing managers in the construction industry continued to indicate a contraction although there was a notable improvement in January. The PMI was reported at 48.4, above the analyst estimate of 48.1. On Monday, manufacturing PMI data provided similar signs of a rebound as in the index rose to a nine-month high.

Technical Analysis

GBP/USD briefly dipped below support at 1.2961 but has recovered after buyers stepped in following the European open. The level is significant not only as it held the pair higher in around the middle of January but also as it acted as resistance from October until early December.

While there are signs that the pair has stabilized, the upside appears to be limited considering the sharp fall yesterday. Upside resistance for the pair for the session ahead is seen at 1.3050.

A break below 1.2961 stands to accompany an acceleration in downside momentum. Considering that GBP/USD is already trading outside of typical ranges, the probability of a bearish break does not appear high in the absence of a catalyst.

Bottom Line

• After a sharp sell-off in the early week, GBP/USD buyers have stepped in to keep the pair above major support at 1.2961.
• While the pair shows signs it may recover, near-term rallies are likely to be short-lived following yesterday’s momentum-driven decline.