GBP/USD Price Analysis – Feb 26, 2024

Daily Price Outlook

Despite the improving UK PMI data and the potential end of recession, the GBP/USD currency pair was unable to extend its previous four-day upward rally and started this news week on a bearish track. The pair has been trading around the 1.2670 level, which shows bearish sentiment. However, the main reason for its declines is the renewed strength of the US dollar, which gained strength in the wake of hawkish comments from Federal Reserve officials, undermining the GBP/USD pair.

Furthermore, the lower February consumer confidence data from the United Kingdom (UK) has played a major role in undermining the GBP currency and contributes to the GBP/USD pair losses. In contrast to this, the improving UK PMI data indicates growth in the country's economic activity across various sectors, suggesting a strengthening UK economy. Furthermore, the end of the recession means that the economy is emerging from a period of contraction, which is typically viewed positively by investors and can support the value of the British Pound.

Impact of Mixed UK Economic Data on GBPUSD Pair

On the UK data front, the GfK Consumer Confidence index for the UK dropped to -21 in February, which is lower than expected and shows people are less confident about the economy. On the positive side, the previously released UK PMI data shows things are getting better, and it seems like the recession from last year might be ending. This can be witnessed after the MUFG Bank experts say recent data hint the recession from last year could be ending. Meanwhile, the S&P Global/CIPS UK Manufacturing PMI improved slightly in February but remained below expectations. Whereas, the UK Services Business Activity Index stayed strong, beating forecasts.

Therefore, this data presents a mixed picture for the GBPUSD pair as the positive signs for the UK economy include indications of the recession ending and stronger-than-expected services activity help the GBP/USD pair to limit its losses. However, negative factors such as the disappointing consumer confidence index and the manufacturing PMI falling below expectations could weigh on the pound's performance.

Impact of Hawkish Fed Stance on GBP/USD Pair

Another factor pressuring the GBP/USD pair is the bullish US dollar, supported by a hawkish stance by the Fed. The broad-based US dollar has maintained its upward trend, hovering near three-month highs against other currencies. This strength is fueled by comments from Federal Reserve officials signaling a cautious approach to interest rate hikes due to persistent inflation.

Moving ahead, the upcoming PCE price index data, a key inflation indicator for the Fed, is expected to provide further clarity on inflation trends. Meanwhile, Federal Reserve President John C. Williams hinted at potential rate hikes later in the year but emphasized they would only be done if necessary. Another Fed official, Christopher J. Waller, suggested delaying rate hikes to assess whether recent high inflation reports are temporary. Therefore, the statement suggests a potential positive outlook for the dollar, as it hints at potential rate hikes.

GBP/USD - Technical Analysis

The British Pound (GBP/USD) edges slightly higher in today's trading session, marking a 0.03% increase to reach 1.26660. This subtle upward movement suggests a cautious optimism among traders, as evidenced in the four-hour chart analysis. The currency pair finds itself navigating around a pivot point at 1.26488, which acts as a critical juncture for future price direction.

Technical analysis highlights several key resistance levels at 1.26932, 1.27215, and 1.27586, which could pose challenges for further bullish momentum. On the flip side, support levels are established at 1.26111, 1.25778, and 1.25385, offering a foundation to buffer any downward pressures. The Relative Strength Index (RSI) stands at 57, indicating a market that is neither overbought nor oversold, but rather in a state of equilibrium.

The 50-day Exponential Moving Average (EMA) at 1.26318 closely aligns with the current pricing, suggesting a convergence of technical indicators in support of a continuing uptrend. This alignment, coupled with the RSI's neutral stance, underscores the potential for a sustained buying trend.

Considering the present technical landscape, the strategy for GBP/USD appears tilted towards the bullish side. Traders might consider entering a buy position above 1.26591, aiming for a take-profit level at 1.26948, with a stop loss set at 1.26304 to mitigate risk. This approach is predicated on the currency pair's ability to maintain its upward trajectory, supported by the 50 EMA and the upward trendline.