Nick Rees, Head of Macro Research at Monex Europe, believes that the current market environment is relatively favourable for the pound, but this is not due to an improvement in the UK’s own fundamentals; rather, it appears that traders’ attention has been diverted. He expects the pound to continue to underperform in the coming months, as the local elections in early May could prove quite damaging to the ruling Labour Party – a fact that the markets, and indeed many politicians, have yet to fully appreciate. This could even lead to further speculation regarding Prime Minister Keir Starmer’s leadership. Several Bank of England officials are due to speak on Tuesday, including Governor Andrew Bailey. Investors were closely monitoring these comments, as rising energy prices have shifted market expectations from potential rate cuts to potential rate hikes. The money markets had previously anticipated that the Bank of England would raise rates at least once in 2026, by 25 basis points, with a strong likelihood of a further hike, although most expected the central bank to keep policy unchanged. Bailey had stated earlier this month that the markets had priced in rate hike expectations prematurely.

US producer price inflation in March came in below expectations. Data from the Department of Labour showed that the Producer Price Index for final demand rose by 0.5% month-on-month last month, lower than the 1.1% forecast by economists; the February figure was also revised downwards to 0.5%. Nevertheless, this has not altered economists’ view that the Federal Reserve is unlikely to cut interest rates in the near future, given the rise in energy costs caused by the war in Iran. Based on the latest data, economists predict that the core Personal Consumption Expenditures Price Index, which the Federal Reserve uses to gauge price trends, may have surged to 3.2% in March, which would be the largest increase in two years. Ostan Goolsbee, President of the Federal Reserve Bank of Chicago, stated on Tuesday at the Semafor World Economic Forum that if the war in Iran leads to persistently high oil prices, thereby delaying inflation’s progress towards the Fed’s 2% target, the Fed may have to wait until 2027 to cut interest rates. He admitted that he had originally expected multiple rate cuts in 2026, but if inflation remains stubbornly high, rate cuts would be postponed until after 2026. Before the war in Iran drove up oil prices and pushed US petrol prices above $4 a gallon, Goolsbee had been one of the more optimistic Fed policymakers, believing that tariff-induced inflation would subside this year, thereby enabling the Fed to resume cutting rates. However, he is now less confident, stating that interest rates may rise in some scenarios, but that rate cuts would also become possible if the oil price shock in the Middle East is resolved and inflation falls.

On the daily chart, the GBP/USD pair shows the Bollinger Bands widening upwards and moving averages diverging upwards, indicating that the overall upward trend remains intact. Following a bullish crossover on the MACD, the fast and slow lines have returned above the zero line, suggesting that the price has re-entered bullish territory. The RSI stands at 62, indicating that market sentiment is predominantly bullish. On the four-hour chart, the Bollinger Bands are widening upwards and the moving averages are diverging upwards, signalling a bullish trend. However, the MACD fast and slow lines have formed a death cross, suggesting that upward momentum is gradually weakening; the price may pull back to the middle Bollinger Band before resuming its upward movement. The RSI stands at 69, indicating that market sentiment remains largely optimistic. The recommended strategy is to go short first, then long.

Trading Recommendation

Trading Direction: Sell

Entry Price: 1.356

Target Price: 1.34

Stop-loss: 1.37

Support Levels: 1.32, 1.30, 1.28

Resistance Levels: 1.36, 1.38, 1.41