British Pound Outperforms as Brexit Deal and Bullish Wave Drive Prices

The US Dollar is again rising this morning after a correction forming against most competitors the day before. Strong economic data has been supporting the currency and is pushing the US Dollar Index above 105.00 for the first time since early December 2022. The Dollar has been positively influenced by Unemployment Claims declining, New Homes increasing to a 6-month high, and the PCE Price Index up more than expected. 

The latest data points to a struggling fight against inflation as demand and confidence grow. However, as mentioned above, yesterday, the price of the Dollar declined against most competitors. Though the strongest performance again went to the British Pound. The British Pound increased by 0.97% against the US Dollar within the 3 main trading sessions. What has driven traders towards the Pound?

GBP/USD

The GBP/USD experienced strong bullish price action throughout the day and opened on a price gap measuring 0.10%. This morning's exchange rate is mainly influenced by the Dollar, which is attempting to regain lost ground against all currencies. However, the new Brexit deal also drove yesterday’s bullish price movement. 

The GBP/USD started forming a bullish impulse wave at the start of the London trading session. The impulse wave continued to increase throughout the day with no retracements forming and was the only major pair to increase onto a “higher high”. This morning's price has retraced back to the breakout point, which indicates that the price may continue its upward trend in the medium term. However, this depends on price drivers throughout the week. 

Technical analysis so far on time frames above 1-Hour continues to point towards a strong Pound. Moving Averages are crossed upwards, and so is the Stochastic Oscillator. Both indications point towards an upward trend. However, the price trades below larger Moving Averages, such as the 100 Simple Moving Average. Technical analysts will monitor throughout the day to see if the GBP/USD will maintain a bearish price movement forcing a downward crossover. If a low crossover forms, the asset will likely obtain further signals favoring the US Dollar. 

GBP/USD 30-Minute on February 28th 

Regarding Fundamental analysis, we see plenty of positive data from the US and the UK. The UK this morning confirmed they have come to an agreement with the EU regarding Ireland crossing Brexit terms. This has proved to be significantly positive for the Pound. The GBP over the past 24 hours also significantly increased against the Euro and the Yen. If the Conservative party can pass the agreement through parliament, investor sentiment toward the Pound may further improve. 

Though investors should also be cautious of the Federal Reserve’s stance on inflation and interest rates, the central bank’s restrictive stance pushes demand higher for the Dollar. Fed Governor Philip Jefferson, this morning advises markets that the Federal Reserve will not increase their inflation target above 2%. In addition, the government confirms that interest rates will remain high for a “long time” and longer than what markets expect. 

For this reason, traders should be cautious that the exchange does not swing in favor of the Dollar due to their monetary policy stance. This afternoon the exchange rate is expected to be influenced by the Consumer Confidence Index, which is expected to rise to 108.5, as well as the Richmond Manufacturing Index.

SNP500

The SNP500 is again declining during this morning’s Futures market, as are most global stocks, including European indices. Yesterday's price experienced positive and negative price movements but kept within the price range formed the week before. According to Bloomberg, one of the main concerns for investors continues to be bond yields. 

The US bond market continues to grow, with the 10-year t-bonds already closing in on the key level of 4%. The 20-year bonds have long since crossed this threshold, trading at a 4.106% yield. This is the highest we have experienced in the bond market since the Fed lowered its hikes. At the same time, this negatively influences the stock market as the return looks much more attractive and reliable for investors. In addition to this, the high yields also confirm that investors believe interest rates will continue to rise in the near future. Higher interest rates can negatively affect the performance of all global companies. 

Key breakout levels can be seen at $4,019 for bullish price movement and $3,940 for bearish price movement. 

SNP500 30-Minute on February 28th 

Summary: 

• The US Dollar increased during this morning’s Asian Session, attempting to form a full price correction. US investors will be monitoring this afternoon’s Consumer Confidence Index.
• The Pound experienced significant gains over the past 24-hours as the UK agreed on a new Brexit deal with the EU. 
• The SNP500 and US Indices remain under pressure from high bond yields and the Fed’s monetary policy. 
• Fed Governor Philip Jefferson, this morning, advises markets that the Federal Reserve will not increase their inflation target above 2% and will keep fighting inflation down to this level.