The GBPUSD hijacked our attention this morning after hitting a fresh 2023 high.

Sterling has become the best performing G10 currency year-to-date, gaining roughly 4.7% against the dollar thanks to fundamental and technical forces.

On the fundamental side, pound bulls remain supported by encouraging UK economic data, BoE rate hike expectations and a weaker dollar. Taking a glance at the technicals, prices are firmly bullish on the weekly timeframe with the next major resistance levels around the 100 and 200-week Simple Moving Averages.

This could be a volatile week for the GBPUSD and here are 4 reasons why…

1. BoE Super Thursday  

The Bank of England (BoE) monetary policy decision will be on Thursday 11th May.

This will be accompanied by the minutes of the meeting and the quarterly Monetary Policy Report (MPR), making it a Super Thursday combo.

Markets widely expect the BoE to raise interest rates by 25 basis points, taking the key rate to 4.5%. Given how UK inflation remains in double digits at 10.1% and strong wage growth, this is unlikely to be the last rate hike from the BoE. Investors will be paying very close attention to the minutes, quarterly MPR and BoE Governor Andrew Bailey’s press conference for fresh clues on the central bank’s next move.

• If the BoE strikes a hawkish note and signals further rate hikes in the face of stubborn inflation, this could boost the GBPUSD higher
• A cautious sounding BoE that hints at potentially pausing rate hikes could send the Pound tumbling.

2. US April CPI report

Before the BoE rate decision, much attention will be directed towards the April US consumer price index (CPI) report published on Wednesday. After last Friday’s robust NFP report that saw the US economy create 253,000 jobs in April, investors will be paying extra attention to the inflation data. CPI year-on-year is expected to rise 5.0% which would be the slowest pace in almost 2 years while Core CPI is forecast to cool 5.5% from the 5.6% in the prior month.

• Should the report point to further evidence of inflation slowing down, this could reinforce expectations around the Fed pausing rates – ultimately lifting the GBPUSD as the dollar weakens.
• If the CPI figures remain sticky, this could compound to last Friday’s strong US jobs report and boost bets around the Fed leaving interest rates higher for longer. Should this boost the dollar, it may drag the GBPUSD lower.

3. Top-tier UK economic data

On Friday, it will be wise to keep a close eye on the UK Q1 GDP print and latest industrial production figures which could offer additional insight into the health of the UK economy. Growth is expected to stagnate in the first quarter of 2023, expanding 0.2% year-on-year compared to the 0.6% witnessed in the previous quarter. Ultimately, a strong set of figures may boost sentiment towards the UK economy while disappointing numbers are seen fuelling fears over the growth outlook.

4. GBPUSD confirmed breakout

After securing a solid daily close above the 1.2580 resistance level, this could signal further upside for the GBPUSD. There have been consistently higher highs and higher lows while prices are trading firmly above the 50,100 and 200-day Simple Moving Average. The bullish momentum could pave a path towards 1.2730 and 1.2870, respectively. If prices sink back under 1.2580, bears may target 1.2530 and 1.2380, respectively.