The losses of the GBP/USD pair during last week's trades were the strongest as they fell to the lowest support level of 1.1717 since the collapse of the markets at the height of the 2020 Corona epidemic.
At the end of the week, the pair tried to recover to the resistance area of 1.1900, but with Jerome Powell's confirmation of moving forward in raising the American interest rate to contain the standard inflation in the United States, he brought more strong momentum to the American dollar and therefore the sterling dollar pair moved towards the support level of 1.1735 , closing around it.
The Pound Sterling quickly gave up its gains against the dollar after Federal Reserve Chairman Jerome Powell said businesses and households would face an increasing struggle as the bank will raise US interest rates further to lower US inflation. He said this in opening remarks at the Jackson Hole Symposium hosted by the Federal Reserve Bank in Kansas City.
"July's increase in the target range was the second increase of 75 basis points in the largest number of meetings, and I said then that another large, unusual increase might be appropriate at our next meeting," told Powell to a gathering of central bank governors
And much of the widely anticipated speech focused on three lessons for policymakers to draw from the Fed's experience with inflation in the 1970s and 1980s, but not before Powell said continued increases in interest rates and the passage of time would be necessary to reduce inflation.
"The restoration of price stability will take some time and requires the strong use of our tools to achieve a better balance between supply and demand. Lowering inflation will likely require a sustained period of flat growth. Furthermore, it is very likely that there will be some decline in the labor market," continued Powell, "While high interest rates, slow growth, and soft labor market conditions will lead to lower inflation, they will also cause some pain for families and businesses. These are the unfortunate costs of reducing inflation. But the failure to restore price stability will mean much more," he added.
The Federal Reserve chairman pointed to clear signs of a slowdown in the US economy in recent months, but was also clear that this was unlikely to sway the Fed from its view that US interest rates needed to rise to the restrictive level and remain at approximately four percent for an extended period to bring inflation back to the 2 percent target.
"At some point, as the monetary policy stance tightens, it will likely become appropriate to slow down the rate of increases. And it is likely that restoring price stability will require maintaining a restrictive political stance for some time," said Powell, “The latest individual forecasts from September showed that the average federal funds rate is slightly below 4 percent until the end of 2023. Participants will update their forecasts at the September meeting," he added.
A wide range of American data in recent weeks has indicated that the economic slowdown in the first half is likely to extend into the third quarter, which could mean there is a risk of a third contraction in a row and the continuation of the "technical recession" in the United States. The S&P Global PMI recently indicated that the recession deepened in the manufacturing and services sectors in August, continuing to contradict the equivalent Institute for Supply Management survey message.
"While recent economic data has been mixed, in my view, our economy continues to show strong fundamental strength," continued Powell, "The labor market is particularly strong, but it is clearly unbalanced, as the demand for workers greatly exceeds the supply of available labor. And inflation exceeds 2 percent, and the high inflation continued to spread through the economy," he added.
Expectations for the GPB/USD:
- In the near term and according to the performance on the hourly chart, it seems that the GBP/USD currency pair is trading within the formation of a weak ascending channel. This indicates a slight upward trend in the short term in market sentiment.
- Therefore, the bulls will look to ride the recent high towards 1.1900 or higher to 1.1945. On the other hand, the bearish speculators will target potential downside profits at around 1.1812 or lower at 1.1769.
- In the long term and according to the performance on the daily chart, it seems that the GBP/USD currency pair is trading within the formation of a descending channel. This points to a significant long-term downward wound in market sentiment.
- Therefore, the bearish speculators will look to extend the current lows towards 1.1725 or lower to 1.1516. On the other hand, the bulls will target long-term profits at around 1.2028 or higher at 1.2230.
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