GBP/USD Key Points
- Tuesday’s UK Construction PMI came in above expectations at 55.3, the highest reading in more than two years
- Time will tell whether traders are overly optimistic that the BOE will be able to cut rates relatively slower than its major rivals or whether more rate cuts still need to be discounted
- GBP/USD’s bias remains to the downside and traders may look to sell this rally as long as rates remain below 1.2760 and the RSI holds below the 50 level.
In an eerily quiet week for UK economic data, GBP/USD has been taking its signal from developments elsewhere and general risk trends. The only notable data release this week was Tuesday’s Construction PMI, which came in above expectations at 55.3, the highest reading in more than two years.
Despite the strong reading (admittedly on a second- if not third-tier economic indicator), sterling has struggled to get into gear this week. Outside of the Swiss franc, the British pound is the weakest major currency since Sunday’s open.
This weakness has emerged despite the BOE being one of the least dovish major central banks looking forward. According to Bloomberg data, OIS traders are pricing in just 44bps of interest rate cuts from the Bank of England this year, or a bit below two 25bps rate cuts, compared to roughly 100bps (four 25bps rate cuts) and 68bps (almost three 25bps rate cuts) for the Fed and ECB respectively.
Time will tell whether traders are overly optimistic that the BOE will be able to cut rates relatively slower than its major rivals or whether more rate cuts still need to be discounted, potentially keeping GBP/USD under pressure.
British Pound Technical Analysis – GBP/USD 4-Hour Chart
Source: TradingView, StoneX
Turning our attention to the chart, GBP/USD remains in its 4-week bearish channel, despite the big rally during the first half of today’s US session.
One tool that traders can use to help handicap when a trend may break is the RSI indicator. In this case, the 14-period RSI on GBP/USD’s 4-hour chart has been stuck in a well-defined range between 30-50 since shortly after the bearish channel formed, signaling consistent, but not excessive, bearish momentum.
Accordingly, bulls may want to watch to see if the RSI can break above the 50 level to either foreshadow or confirm a breakout in the exchange rate itself.
For now though, the bias remains to the downside and traders may look to sell this rally as long as rates remain below 1.2760 and the RSI holds below the 50 level.