- The recent halt in US dollar gains and the relative return of confidence in financial markets after Trump's strong threats of further tariffs helped the bulls of the GBP/USD currency pair to move towards the 1.2678 resistance level, the highest for the currency pair in more than two months.
- Before closing the week's trading, it stabilized around the 1.2632 level.
- Its recent gains were enough to push some technical indicators towards strong overbought levels.
UK Economic Performance Affects the Pound’s Gains
On the economic side, a survey last week showed that the British economy remained stagnant in February, as weak demand and rising costs led to the most severe job cuts in the private sector since November 2020. According to the results of the economic calendar data, the S&P Flash UK Composite Global Purchasing Managers’ Index fell slightly to 50.5 from 50.6 in January, indicating slight growth for the second consecutive month. However, business confidence remained fragile, and inflationary pressures intensified.
Commenting on the results, Chris Williamson, chief business economist at S&P Global Market Intelligence, which compiles the report, said: “The UK economy is struggling to gain momentum, with job losses mounting and demand faltering. Added, “The lack of growth coupled with rising price pressures presents a stagflationary dilemma for the Bank of England.”
According to the last reports, Britain's largest sector, services, saw its PMI rise to 51.1 from 50.8, expanding at a modest pace, exceeding expectations of 50.8. The manufacturing PMI fell to 46.4, its lowest level in 14 months, signalling a deeper contraction. New orders fell for the third month, representing the sharpest decline in 18 months. Private sector employment fell at the fastest rate in more than four years, with one in three companies linking layoffs to rising national insurance and wage costs. According to experts, "The employment PMI is now declining to catastrophic depths. The employment balance is almost as weak as it was in the fourth quarter of 2008, after the Lehman Brothers bankruptcy."
However, Pantheon Macroeconomics says it doubts that UK jobs are falling at the same pace as they did in the financial crisis, citing official payrolls holding up much better than the PMI.
In general, UK companies will have to pay more taxes on employee wages in April as minimum wage payments increase. Input cost inflation hit a 21-month high, driven by higher wages, energy bills and higher supplier prices. While business confidence has improved slightly, firms remain cautious amid rising costs and economic uncertainty. “With inflationary pressures mounting and demand weakening, the Bank of England faces a tough balancing act,” experts say.
In general, the UK’s economic slump, coupled with rising costs and job losses, raises concerns about further weakness in the coming months.
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Trading Tips:
This week will be important from the American side. So, be careful because the data is abundant and important, and the reaction to the performance of the sterling dollar will be strong and direct.
Will the gains of the British pound continue?
According to recent forex market trading, the pound sterling recorded gains against the euro and the US dollar after the release of the latest British data with strong retail sales and January tax revenue data, which eased concerns about the economy. According to performance, the GBP/USD exchange rate reached its highest level in two months, slightly below 1.2680, while the GBP/EUR exchange rate remained stable around 1.2075.
According to the results of the economic calendar data, retail sales volumes in Britain jumped by 1.7% for January after a revised decline of 0.6% for December and compared to consensus expectations of a 0.4% increase. This was the highest figure since August 2024. Sales of food stores rose by 5.6% in the month following a weak December, while sales of non-food stores declined. Sales volumes fell by 0.6% in the three months to January 2025 compared to the previous three months but increased by 1.4% over the year.
Also, The GfK UK consumer confidence index improved slightly to -20 for February from -22 previously and slightly above market expectations. The provisional data also showed the UK government posted a surplus of £15.4bn for January, up from £14.6bn a year earlier and the strongest January surplus since the current series began in 1993. January is always a strong month for revenues due to personal self-assessment tax receipts, but the better-than-expected data will ease concerns about underlying trends and limit expectations that Chancellor Reeves will be forced to raise taxes further in March.
Technical Analysis for the GBP/USD pair today:
According to trading on the daily chart, the GBP/USD currency pair is moving within an upward channel formation. Technically, its recent gains have moved the MACD indicator and the relative strength index towards strong overbought levels, so be careful of renewed sell-off operations for profit-taking at any time. Currently, the closest resistance levels for the currency pair are 1.2685, 1.2730, and 1.2800, respectively. In contrast, and over the same time period, the bears' success in moving the currency pair to the 1.2450 support level is a collapse of the current rise hopes.
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