Pound Sterling (GBP/USD, EUR/GBP) Analysis

• Enough US data to go around this week: ADP, services PMI and NFP
• GBP/USD bounces after disappointing US services PMI data sends USD lower
• GBP/CHF attempts to find resistance as the pair recovers from overbought territory
• See what our analysts forecast for sterling in the second quarter by reading out comprehensive pound sterling Q2 forecast:

There’s Enough US Data to go Around this week

There is a distinct lack of UK data out this week but that does not suggest sterling-linked pairs ought to be disregarded. FX moves picked up in the latter stages of Q1 and with central banks now considering interest rate cuts, the burning question is when will they have the confidence to start.

In contrast, US data has been plentiful with ADP data adding to the robustness seen in the job market. US services PMI data helped extend the shorter-term dollar pullback after ‘new orders’ and ‘prices’ both declined in the month of March, seeing the headline reading moderate from 52.6 to 51.4. There is a notable amount of Fed speak to end the day, with Jerome Powell the standout of them all.

GBP/USD bounces after disappointing US services PMI data sends USD lower

GBP/USD sold off sharply in the latter stages of March after the Fed’s summary of economic projections revised growth and inflation higher but maintained its December view on the number of rate cuts for 2024.

Robust growth and hotter inflation in 2024, prompted markets to downplay the possibility of three rate cuts this year, now sitting somewhere between two and three. That send GBP/USD lower where it now appears to have found support.

US services PMI data for March revealed a decline in ‘prices’ and a forward-looking indicator, ‘new orders’. Given that the services sector is the largest contributor to GDP – the softer data appears to have released some of the hot air that had accumulated post-FOMC, weighing on the dollar.

GBP/USD appears to have bottomed and trades back within the broad trading range which helped the pound trade near the top of the leaderboard in Q1 as other G10 currencies felt the effects of a strong dollar.

Upside targets from here include the 1.2736 level and the upper bound of the trading range at 1.2800 flat. However, ‘high importance’ US data this week can get in the way of such a move should the job market continue to push on. Support lies at 1.2585 (coinciding with the 200-day SMA), followed by the recent swing low.

GBP/USD Daily Chart

Source: TradingView, prepared by Richard Snow

GBP/CHF attempts to find resistance as the pair recovers from overbought territory

Now that the Swiss National Bank (SNB) surprised markets with a 25 basis point cut in March, the Swiss Franc appears vulnerable. However, since the SNB meeting, GBP/CHF has failed to trade above the March 21st high, witnessing long upper wicks which ultimately fell short of the mark.

The pair also attempts to recover from overbought territory and so there may be room for a shorter-term pullback should bears pile in from here. The gold overlay is the yield differential for the pair (GB 10 year bond yield -Swiss 10 year yield) and has helped, to some degree, explain the path of the pair.

Support sits at the recent swing low around 1.1345 with resistance at 1.1460.

GBP/CHF Daily Chart

Source: TradingView, prepared by Richard Snow

https://www.dailyfx.com/news/pound-sterling-update-gbp-usd-lifts-higher-gbp-chf-treads-carefully-20240403.html