GBP/USD Bulls Test Resistance Following ECB Statement

• GBP/USD holds firm in post-ECB correction.
• Bears are lurking near the 61.8% Fibonacci level on the 4-hour chart.

He GBP/USD is facing hourly resistance following the European Central Bank’s interest rate decision and Lagarde’s press conference. The ECB went ahead with a half-point rate hike on Thursday. Before the decision, market participants wondered if the governing council could get in the way. However, the euro sank and the dollar stabilized, putting a weight on sterling. At time of writing, GBP/USD is trading 0.28% higher and has ranged from a low of 1.2026 to a low of 1.2112.

In the face of recent turbulence in the banking sector, notably Credit Suisse’s worst day yesterday, after its shares plunged as much as 30% on Wednesday, the ECB went ahead and raised interest rates as follows;

• Prime refinancing rate at 3.50% vs. 3.00% prior.
• The interest rate of the marginal credit facility rises to 3.75% compared to the previous 3.25%.
• The deposit facility at 3.00%, compared to the previous 2.50%.

The bottom line is that the governing council remains very concerned about inflation, analysts at TD Securities explain, noting that the first sentence of the publication is: “Inflation is expected to stay too high for too long.”

OFML were not announced, but the statement shows a willingness to provide liquidity if necessary. On the other hand, the statement does not refer to future increases.

At the press conference, Governor Christine Lagarde said the bank remains committed to the 2% inflation target and no major improvements are seen in core inflation.

Key notes from the ECB statement

• It refrains from pointing out future rate movements in the statement.
• Inflation is expected to stay too high for too long.
• Average inflation is expected to be 5.3% in 2023, 2.9% in 2024 and 2.1% in 2025.
• Forecasts made before the market turbulence.
• The high level of uncertainty reinforces the importance of a data-driven approach to the ECB’s policy decision, which will be determined by its assessment of the inflation outlook in the light of incoming data and dynamics.
• The banking sector is resilient, with strong capital and liquidity positions.
• The policy toolkit is fully equipped to provide liquidity support to the eurozone financial system if necessary.

GBP/USD Technical Analysis

The break below the 50-day moving average is bearish:

4 hour chart

We see room for the dollar to reverse this week’s losses and would look for GBP/USD to move back towards 1.19 one month ahead,” they said. Rabobank analysts.