Economic Headwinds! GBP/USD Eyes 1.35

Summary:

UK Chancellor of the Exchequer Rachel Reeves has said she will outline specific measures later this week to help businesses struggling with high energy prices due to the ongoing conflict in Iran.

BUY GBPUSD

EXP

TRADING

1.34046

Entry Price

1.37000

1.32000

1.34396 -0.00202 -0.15%

0.0

Pips

Flat

1.32000

Exit Price

1.34046

Entry Price

1.37000

Fundamentals

Last week, the UK’s core economic data for March continued to signal stagflation, with the final reading of the services PMI revised down to 50.5—an 11-month low—and the construction PMI remaining in contractionary territory for the 15th consecutive month. Input cost inflation in both sectors reached multi-year highs, or even record levels, whilst new orders and business confidence fell in tandem. Halifax’s house price data unexpectedly fell by 0.5% month-on-month, bringing the recovery in the property market to an abrupt halt. It is now clear that the UK’s domestic economic growth momentum continues to wane, whilst inflationary pressures are resurging. Bank of England Governor Bailey has previously made it clear that, although businesses face pressure to pass on costs, their power to set end-consumer prices is limited, making it difficult to fully absorb the impact of imported inflation; domestic fundamentals are not providing the pound with any endogenous upward momentum. Regarding the situation in the Middle East and the subsequent direction of the markets, analysts at several international investment banks and institutions have cautioned against blind optimism, noting that the sustainability of the temporary ceasefire is in doubt and that risk aversion could flare up again at any moment.

With petrol and diesel prices hitting record highs due to the war with Iran, the US Consumer Price Index recorded its largest monthly rise in nearly four years in March. This deals a fresh political blow to President Donald Trump, whose approval ratings have been steadily declining due to his mishandling of economic issues. Data released last Friday by the US Department of Labour’s Bureau of Labour Statistics showed that the CPI rose by 0.9% month-on-month in March, the largest increase since June 2022. This was significantly higher than February’s 0.3% rise and in line with economists’ expectations. Petrol prices surged by 21.2%, marking the largest monthly increase since records began in 1967, and accounted for almost three-quarters of the month’s CPI rise. Prices for other motor vehicle fuels, including diesel, also soared by 30.8%, setting a new historical record. Although the core CPI, which excludes food and energy, rose by just 0.2% month-on-month—unchanged from the previous month—economists noted that this was largely due to the short-term dampening effect of unusual price falls in used cars, lorries and health insurance. The March figures reflect only the initial impact of the oil price shock, with a broader second-round effect likely to emerge in the coming months. Consequently, the moderate core inflation data is unlikely to reassure Federal Reserve officials, and the market widely expects it to be highly unlikely that interest rates will be cut this year. The conflict between the US and Iran has driven global crude oil prices up by more than 30%, with the average retail price of petrol across the US exceeding $4 per gallon for the first time in over three years. Although President Trump announced on Tuesday a two-week ceasefire, contingent on Tehran agreeing to reopen the Strait of Hormuz, the agreement is considered highly fragile.

Technical Analysis

On the daily chart, the GBP/USD pair shows the Bollinger Bands narrowing and moving averages flattening out, suggesting a potential reversal at any moment. Following a bullish crossover on the MACD, the fast and slow lines have pulled back towards the 0-line, indicating that the rebound is nearing its end. The RSI stands at 53, with market participants adopting a wait-and-see approach. On the four-hour chart, the Bollinger Bands are widening upwards and the moving averages are diverging upwards, indicating a bullish trend. However, the MACD fast and slow lines have formed a death cross, suggesting that prices may pull back to the 200-period EMA (around 1.336) before resuming their upward movement. With the RSI at 53, market participants remain largely on the sidelines. The recommended strategy is to buy on dips.

Trading Recommendation

Trading Direction: Buy

Entry Price: 1.34

Target Price: 1.37

Stop-loss Price: 1.32

Support Levels: 1.32, 1.30, 1.28

Resistance Levels: 1.35, 1.38, 1.41

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Economic Headwinds! GBP/USD Eyes 1.35

Risk Disclosure