- In the middle of trading this week, the British pound came under pressure amid a bout of dominance between the dollar and the euro ahead of the release of US inflation data on Thursday.
- It will only be next week when traders get something centered around the UK to find strengths in the pound or a continuation of the current performance.
- The GBP/USD currency pair is settling downwards on the threshold of support at 1.2700, in a cautious waiting mode, as is the rest of the markets and currency pairs, until the reaction to the announcement of the US inflation numbers.
With little else on the UK's docket, the pound is trading as a function of developments in the euro-dollar exchange rate, the world's dominant currency pair, which has been seen making another attempt to reclaim the 1.10 level.
Commenting on the performance of the currencies, MoneyCorp analysts said that, “Technical analysis shows that EUR/USD is trading on a daily basis around the important pivot at 1.10, as the Euro and the US dollar are battling for supremacy. This has a significant impact on GBP/EUR and GBP/USD, and the pound is being pushed and pulled by its relative strength to these two dominant currencies rather than moving significantly of its own volition.”
EUR/USD's strength meanwhile indicates that the euro is finding a stronger supply, and this has pressured the GBP/EUR exchange rate back to the full figure of 1.16. Although we note that the most important support levels for this pair It is in fact lower towards 1.1550 so we wouldn't be surprised to see more weakness in the near term.
In general, the forex market may see some new impetus today, Thursday, when the US releases its latest inflation data, which should provide clearer guidance on whether the Fed will raise interest rates again in September. Failure to achieve the target would maintain the trend of downward inflation surprises that would relieve pressure on US interest rates and may support the recovery of the Sterling pound. However, the upside surprise will be where the move lies as this could renew bets on a Fed rally and push the dollar to a new high, injecting a fresh dose of uncertainty into the GBP/EUR rate.
The latest trend is the weakening of the pound against the euro and this could eventually extend if global stock markets get pressured, a possibility if investors are concerned about rising interest rates. Beyond the near term, the GBP remains well supported by the UK interest rate outlook, and BoE messaging rates will remain elevated for a while longer.
As such, the weakness may be relatively shallow on a multi-day basis.
Next week brings the release of UK inflation and labor market data, two important influences for the Bank of England which looks set to raise interest rates again in September but is likely to pause after that. A strong set of wage and inflation numbers will boost the odds of a rate hike in November and potentially provide the pound with the opportunity to regain recently lost value.
GBP/USD Forecast
According to the performance on the daily chart below, the price of the GBP/USD pair is still bearish, and stability below the support at 1.2700 will strengthen the bears' position for further movement downwards, and the next support levels will be 1.2610 and 1.2540, respectively.
It is enough to push the technical indicators toward strong oversold levels. On the other hand, and for the same time period, and as I mentioned before, the psychological resistance at 1.3000 will be important to change the direction of the currency pair to bullish.
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