GBPUSD Exchange Rate Support Could Face a Test

GBPUSD, showing signs of weakness, could test support levels in the upcoming sessions, signalling a need for caution and vigilance among investors and traders. 

GBPUSD – Daily Chart

GBPUSD – Daily Chart 

GBPUSD trades at 1.2638; after recent weakness, it could fall to 1.2537. 

Tomorrow’s economic data, including further US inflation data, is essential. The PCE and core PCE pricing data, expected to be similar to the previous month, could fuel the fire of interest rates remaining higher, a factor that Fed Chair Jerome Powell is also likely to address this week. 

The Bank of England’s warnings about the UK’s growing risk from a weaker financial system and rising political tensions should not be taken lightly. While households and businesses have shown resilience despite higher prices, the strain is becoming evident. 

Share and bond asset prices have risen, leading to higher valuations. However, the BoE has said private equity buyouts are a risk. With higher interest rates, the bank said that reversing the boom in private equity investing could put firms in a more vulnerable position. 

Another future headwind for the British pound is that 45% of fixed-rate mortgage holders will face higher monthly repayments when they reprice their mortgage by the end of 2026. 

The BoE also warned of a correction in asset prices, saying Investors were “putting less weight on risks to growth or the path of interest rates necessary to bring inflation back to target sustainably”.  

“The risk of a sharp correction in a broad range of assets and a widening of credit spreads…had therefore grown since 2023”, the central bank said.  

In the short term, inflationary pressures in the United States could add to pressure on the British pound.

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