November 25,2022 01:30 AM ET
By:AnalysisWatch
The GBP/USD pair is trading in a narrow range at the start of European trading on Friday, consolidating this week's sharp rise to its highest level since August 12. The pair is currently hovering around the 1.2100 round figure and remains within striking distance of a technically significant 200-day simple moving average (SMA).
The US dollar is struggling to gain significant ground and remains just above the low for the month, which in turn continues to provide a tailwind for the GBP/USD pair. The dovish assessment of the Federal Open Market Committee meeting minutes released on Wednesday continues to push U.S. government bond yields lower. Together with a generally positive sentiment in the equity markets, this is seen as weakening the safe-haven greenback.
On the other hand, the British pound has been supported by the recent sharp decline in UK government bond yields. This implies an easing of financial conditions in the UK, which should allow the Bank of England to further raise borrowing costs in order to dampen inflation. The combination of the above fundamental factors supports the prospects for further near-term appreciation of the GBP/USD pair.
However, the gloomy outlook for the UK economy may discourage traders from aggressively placing bullish bets. Recall that the U.K. Office for Budget Responsibility (OBR) forecasts a 1.4% contraction in U.K. GDP next year, down from the 1.8% growth expected in March. This, in turn, could limit GBP/USD gains on lower trading volumes.
Nonetheless, spot rates remain on track to post gains for the third consecutive week as no relevant market-moving economic data is released from the UK or elsewhere. The market is now focused on next week's important U.S. macro data: the preliminary third quarter GDP report, the core PCE price index (the Fed's preferred inflation indicator), and the much-watched monthly labor market data, commonly known as NFP.