Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.2600.
- Add a stop-loss at 1.2400.
- Timeline: 1-2 days.
Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2400.
- Add a stop-loss at 1.2600.
The British pound continued its relentless sell-off as crude oil prices rose and after a dovish statement by Andrew Bailey. The GBP/USD pair retreated to a low of 1.2483, the lowest level since June.
Inflation concerns remain
The GBP/USD exchange rate downward trend continued after the US published another set of positive economic data. According to the Institute of Supply Management (ISM), the country’s non-manufacturing sector continued growing in August. It rose from 52.7 in July to 54.5 in August, higher than the median estimate of 52.5.
The report is a sign that the American economy is doing relatively well since the services sector accounts for its largest part. Therefore, there is a likelihood that the Federal Reserve will maintain its hawkish tone.
This view has been exacerbated by the ongoing crude oil bull market. Brent, the international benchmark, rose to $90.67 while West Texas Intermediate (WTI) soared to $87.60. Therefore, there is a likelihood that the US inflation will remain above the 2% target for a while. This explains why the US dollar index rally continued.
On the other hand, Andrew Bailey believes that the Bank of England (BoE) will maintain interest rates at the current level for a while. In a statement, he said that there was no need for further rate hikes.
The BoE is in a more difficult place than the Federal Reserve since the UK economy is slowing at a faster pace. Inflation in the UK rose to 6.4% in July, much higher than the bank’s target of 2.0%.
The key GBP/USD news on Thursday will be speeches by Fed’s Patrick Harker, Goolsbee, and Bowman. It will also react to the latest initial and continuing jobless numbers from the US.
GBP/USD technical analysis
The GBP/USD pair has been in a strong bearish trend in the past few days. It has moved to the lower side of the descending channel and dropped below the 25-period and 50-period moving averages. At the same time, the Relative Strength Index (RSI) has moved to the oversold level.
Notably, the pair has moved to the 200-day moving average on the daily chart. Therefore, while the overall trend is bearish, there is a likelihood that it will have a brief reprieve on Thursday as some investors buy the dip. If this happens, it could retest the resistance at 1.2600.
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