Fundamental analysis GBP/USD

GBP/USD dropped from its intraday highs, trading around 1.26200. The currency pair tried to gain momentum based on data and surveys reflecting some positive aspects of the UK economy. 

 The final UK GDP data for Q1 2023 showed a slight increase of 0.1% QoQ and 0.2% YoY, confirming previous estimates. This slight growth suggests that the economy is struggling with high inflation and rising interest rates amid a cost-of-living crisis. Of the G7 countries in particular, only the UK and Germany are still lagging behind their pre-pandemic GDP levels. 

 However, there were positive signs in the U.K. business sector, with the Lloyds PMI reporting a 9 percentage point increase in business confidence to 37%. This is a 13-month high, indicating a rebound in June after a decline in May. In addition, the U.K. automotive sector is on the rise. The Society of Automobile Manufacturers and Tradesmen reported last month that the U.K. produced 27% more than the same period last year. Despite this growth, production is still 31.9% below 2019 levels. Conflicting emotions from central banks are also affecting the movement of currency pairs. Bank of England policymaker Silvana Tenreiro believes that a significant rate hike by the Bank of England could lead to a more rapid rate reversal in the future. On the other side of the Atlantic, Fed Chairman Jerome Powell hinted at the possibility of two more rate hikes in 2023. U.S. economic data are also more optimistic than UK economic data. Real GDP growth for the first quarter of 2023 was 2.0%, up from an initial estimate of 1.3%. %. In addition, initial weekly jobless claims in the U.S. fell to 239,000, down from 265,000. 

Market participants are waiting for the release of the key inflation indicator, the U.S. Personal Consumer Price Index (PCE) for May. Attention is also focused on the Fed's actions. PCE is expected to remain stable at 0.4% mom and 4.7% y/y. If the data proves to be true, the Fed's monetary policy might remain hawkish, which will put additional pressure on the GBP/USD pair. Investors will keep an eye on external factors such as China's PMI data, which could affect the market. Overall, the GBP/USD pair faces headwinds from a combination of moderate UK economic growth, controversial central bank policy and strong economic data.

Technical analysis and scenarios:

With the Alligator indicator indicating that the pair is in a downtrend, and given the unimpressive UK economic data, GBP/USD may continue to experience downward pressure in the near term. The fact that Awesome Oscillator (AO) and Accelerator Oscillator (AC) are in the green zone may also indicate potential for an uptrend.

Basic scenario (SELL)

Recommended entry level: 1.26000.

Take Profit: 1.25360.

Stop loss: 1.26630.

Alternative scenario (BUY)

Recommended entry level: 1.26630.

Take Profit: 1.27300.

Stop Loss: 1.2630.