GBP/USD Daily Fundamental Forecast – February 22, 2018

The pound has been showing some good resilience over the last couple of weeks despite the strength in the dollar which has been growing. It is indeed a big surprise to see the pound hold its ground especially over the last few days when the dollar has gained all across the board, including against the strong euro as well. It has managed to hug on to the support region of 1.40 but yesterday provided the ultimate test.

GBPUSD Moves Lower

One of the reasons for the pound strength has been the strength of the incoming data from the UK which has been becoming more and more in recent times. Also, we have been seeing an upbeat BOE which has been hawkish in its assessment of the economy and the timing of the future rate hikes as well. The GBPUSD pair has been able to gain strength from such developments as the market realises that the BOE is likely to act sooner or later in order to keep pace with the rest of the world as far as the rate hikes are concerned.

Yesteryday, we saw the release of the FOMC minutes and after an initial confusion of how the minutes needed to be studied, it became clear that the Fed had been very hawkish. It indicates an inclination of the Fed to think of more than 3 rate hikes during the course of this year and this is good for the dollar in the short and medium term. So good that even the pound bulls had to give up ground and retreat as the GBPUSD pair pushed towards the 1.39 region and it continues to trade in that region as of this writing.

Yesterday, we had the inflation report hearings which also turned out to be more hawkish than what was expected. Today we have the second estimate of the GDP but the strength of the dollar is likely to be the dominating theme in the markets for the day. Considering this, any approach towards the 1.40 region should be considered as an opportunity to sell.