Societe Generale economists argue that the British Pound (GBP) and Gilts face a pivotal period as the Bank of England (BoE) reacts to persistent inflation and wage pressures, which have slowed the pace of rate cuts and hurt long-end Gilts. They highlight that GBP/USD has pulled back after failing near 1.3660 and slipping below the 200‑DMA, with the moving average around 1.3430 now a key hurdle and warn that inability to clear this level could extend downside towards the March low at 1.3220/1.3150, with a break below opening a deeper downtrend. Intraday, support is seen at 1.3220 and resistance at 1.3430.

Sterling pressured by technical barriers

"For sterling and Gilts, a pivotal week could lie ahead for the BoE and the future of the Starmer government. Inflation and fears of second round effects tied to wages have forced the BoE to go slow on lowering rates and have dented the appeal of Gilts in the long end. There is a non-negligible possibility that chief economist Pill is joined by other MPC members voting for a rate hike at the next meetings if core CPI comes in hot on Wednesday."

"There could be relief if inflation comes down in April. SG economics forecast a dip in headline to 3.0% yoy and core to 2.6% yoy, in line with consensus. Private sector wages are forecast to rise 3.1% yoy for the 3-month period ending March. Gilts have not been aided by the political storm engulfing the Labour cabinet and a possible swing to the Left."

"Former Health Secretary Streeting announced his intention to challenge PM Starmer. The return of Burnham to Westminster is not without complications, requiring victory over Reform and the Greens in the Makerfield by-election (likely 18th June). Both Streeting and Burnham want Britain to rejoin the EU but Makerfield voted in favour of leaving in 2016."

"GBP/USD has staged a steady pullback after encountering strong resistance near 1.3660 earlier this month. The pair has fallen below the 200- DMA, highlighting a lack of steady upward momentum."

"The moving average, currently around 1.3430, may act as a short-term hurdle. An inability to overcome this resistance could result in continued downside. The March low near 1.3220/1.3150 is next support zone. A break below this may lead to a deeper extension of the downtrend."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)