The GBP/USD exchange rate hit multi-decade lows last week before rebounding ahead of the weekend. The move that can be extended likely depends on the market's response to US inflation data which could be useful in shaping a position. The recent rebound gains for the GBP/USD pair reached the resistance level of 1.1710 before settling around the 1.1670 level at the time of writing the analysis.
All in all, the US dollar was broadly sold off against all major currencies except the Japanese Yen last week while the Sterling Pound was also able to perform a much more prosperous performance after announcing a massive financial support package from the new British Prime Minister Liz Truss.
Don’t Expect Inflation to Return to 2% Target
Many US inflation rates have eased in recent months, but not nearly enough to convince the Fed that it will ease back enough to be able to hit the 2% inflation target anytime soon, a reality underscored by Cleveland Fed President Loretta Mester. last Friday. She stated, “My current view is that it will be necessary to raise the nominal Fed funds rate to just over 4 per cent by early next year and keep it there; I don't expect the Fed to cut the fed funds rate next year. But let me emphasize that this depends on my current reading of the economy and the outlook.”
She also said in an update on the outlook for the economy and Federal Reserve policy.
Loretta Mester said she does not expect inflation to return to the 2% target until 2024 and that she would "need to see several months of dips in month-to-month readings" before she is ready to conclude that inflation has peaked. Moreover, she clearly indicated that any adverse outcomes such as a renewed increase in inflation could lead her to favor more aggressive measures than the Fed already had in mind and cited the approach of former Fed Chair Paul Volcker as a typical example of how best to deal with current inflation.
"Paul Volcker may have said it better when he was fighting inflation in the 1980s: '...Failure to continue now to fight inflation will only make any subsequent effort more difficult, and at a much greater risk to the economy,'" Meester added on Friday. For unfamiliar readers, Volcker was the Federal Reserve chairman best known for using brutally high borrowing costs to push double-digit inflation rates out of the US economy between 1979 and 1989, which was a volatile period for global markets and the US dollar.
GBP/USD is likely to remain heavy this week
The Bank of England (BoE) has postponed its policy meeting to next week due to the death of Queen Elizabeth. We expect the Bank of England to raise rates by 50 basis points to 2.25%. Tuesday's US inflation numbers are the highlight of the week for dollar exchange rates and global markets, but they are booked by UK GDP data and August inflation numbers on Monday and Wednesday, as well as August retail sales numbers on Friday.
Sterling dollar forecast today:
The GBP/USD pair is subject to interacting with a package of influential economic data, whether from Britain or from the United States of America.
- The currency pair has not exited from the range of its sharp bearish channel.
- There will be no first break of the trend without breaching the 1.2000 resistance.
- The influencing factors will remain in favor of the US dollar in the end.
- Technical indicators turned into neutral areas after the recent selling operations, which pushed them towards strong oversold levels and sharp selling.
On the downside and according to the performance on the daily chart, a break of the 1.1540 support will be important for the bears to launch again.
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