The GBP/USD exchange rate hit a six-month high, just over 1.3200, before settling at 1.3170.
The U.S. dollar fell to six-month lows in global markets, as fears of a U.S. recession grew and risk appetite deteriorated. There are hopes that the UK can get concessions from the US administration.
MUFG commented: “We share the optimism that the UK may be closer to reaching an agreement sooner with the US, for a possible tariff rate cut. So, this is a potential positive stimulus for GBP.”
However, risk appetite remains very fragile, with heavy losses in global stock markets. The FTSE 100 fell 1.8%, while the S&P 500 fell 4.4%.
Sterling becomes vulnerable when risk appetite decreases.
MUFG added: “Therefore, this is a warning against building long-term long positions in sterling on the back of a possible tariff cut on the UK.
The GBP/EUR exchange rate recorded sharp losses to a three-week low below 1.1850.
Nicholas Rees, head of macroeconomic research at Monex Europe, believes that concerns about the UK budget will increase again: “We believe that all the fiscal space that Reeves rebuilt in the spring statement is now gone. We think she’ll have to come back in the fall and announce another set of tax increases or spending cuts.”
ING Bank commented on the dollar; “The repercussions of US tariffs on the US domestic economy weaken the dollar. U.S. interest rates remain low, and the dollar won’t start getting some support until after surprising good news from the U.S. on tax cuts or liberalization.”
Dollar Falls on U.S. Recession Fears
The dollar sell-off in global markets accelerated, with US stocks under constant pressure. Uncertainty will remain severe, with high volatility and frequent shifts in trends inevitable.
Georg Saravelos, of Deutsche Bank, commented: “Our general message is that there is a risk that large shifts in capital flow allocations will overwhelm currency fundamentals and foreign exchange market movements will become disorderly.”
S&P 500 futures are trading down 3.5%, as global investors worry about the risk of a US recession and renewed doubts about US exceptionality.
The dollar fell to a 6-month low, and the GBP/USD exchange rate rose to a 6-month high, slightly above 1.3200.
The euro strengthened further, with the EURUSD pair rising to a six-month high, surpassing 1.1100. While short-term overbought conditions could lead to a tight range trading for a few days, as long as it does not break through the 1.2940 level (unchanged from yesterday’s “strong support” level), there is a chance for the pound to test the key weekly resistance level at 1.3300 later.
According to ING Bank, there is a major medium-term resistance at 1.11/12. It is difficult to consider breaking it a major breakthrough unless US economic activity collapses.
Resistance to the euro will make it difficult to sustain GBP/USD gains. Under these conditions, the GBP/EUR exchange rate fell sharply to 1.1880.
“The pound may also outperform the euro, because the UK has been less affected by relatively smaller tariffs than the EU, but there is also a warning that the pound tends to weaken more than the euro under more risk-averse trading conditions.”
Sterling trades in a limited range against the dollar
Price action indicates that the rally has stopped; the British pound (GBP) is likely to trade in a range of 1.3040 to 1.3200 against the US dollar (USD). In the longer term, overbought conditions could lead to trading within a specific price range for a few days; there is a chance that the pound will test for 1.3300 later, according to UOB Group forex analysts Quick Sir Liang and Peter Shea.
GBP is likely to trade in a range between 1.3040 and 1.3200
24-hour look: “After the GBP rally on Wednesday, we confirmed yesterday that ‘although the sharp rally seems excessive, it is showing no signs of stopping yet.’ However, we noted that “given severe overbought conditions, GBP is unlikely to clearly exceed the 1.3080 level.” The pound easily broke through 1.3080 to 1.3207 before falling sharply to close at 1.3100 (+0.68%). Price action indicates that the rally has stopped. Today, we expect the Pound to trade in a range between 1.3040 and 1.3200.
Three-week forecast: “Yesterday, April 3, when the pound was at 1.3030, we highlighted the following: “The bullish momentum is building rapidly, but the pound must break through the 1.3080 level and hold above it before expecting further gains. The probability of a clear breakout of 1.3080 will remain as long as it does not break through the 1.2940 level.” We did not expect the pound to rise to 1.3207. While short-term overbought conditions could lead to a tight range trading for a few days, as long as it does not break through the 1.2940 level (unchanged from yesterday’s “strong support” level), there is a chance for the pound to test the key weekly resistance level at 1.3300 later.
