Sterling fell below a key level on the charts suggesting the trend has reversed in favor of further weakness against the US dollar at the start of a busy week dominated by the US Federal Reserve, UK inflation data and Bank of England interest rate decisions. Prior to those important events, the price of the GBP/USD currency pair stabilizes downwards around the 1.2370 support level, which is the lowest it has been in three months.
The exchange rate of the pound against the dollar stabilizes around last week's losses, falling below the 200-day moving average, which we tend to use as a benchmark for measuring the trend in the currency pair. The move below this key sign indicates that the 2023 uptrend in the conversion, which made it as high as 1.31, has been nullified, and is now favored more bearish on a multi-week basis.
Commenting on the performance of the currency pair. Societe Generale analyst Kate Jukes says: "The GBP/USD pair fell with the euro and fell below its 200-day moving average, which looks ominous." And "even a non-technical person like me can see the importance of an average 200 days here.” For his part, Thaneem Islam, head of forex forex analysis at Equals, says: "The GBP/USD has fallen by more than 5% since it peaked in July, and since breaking the year-long uptrend in August, we can clearly see that we are now in a downward trend. The 200-day moving average was supposed to be a support for the pound but we have even seen a breach of this key level indicating the possibility of further weakness in the pair's performance as well. And we can see the move towards the lows of May 2023 before we see a rebound to the top".
Analysts believe that the pound sterling and the euro are likely to remain under pressure against the US dollar given the relative strength of the US economy, although a major decline is still unlikely at this stage. The only positive thing I can think of for the euro or sterling, in a world where growth expectations are the biggest driver of exchange rates, is that the UK and eurozone growth outlook is really bad compared to the US. This should be enough to prevent a sharp collapse of the EUR/USD or GBP/USD pair (it seems unlikely that EUR/USD or GBP/USD will fall to around 1.15) but GBP/USD could reach 1.20, And EUR/USD could easily trade below 1.05 easily if we don't get any positive surprises from real economic data in Europe soon.
Overall GBP/USD strength may be challenged in the short term on any surprises in US data and central bank developments, although it is likely to be sold off at this stage. Those watching the market need to take advantage of these short tactical advantages the range. Tomorrow, Wednesday, the US Federal Reserve Bank will issue its latest decisions and directives, which exposes some possible fluctuations in the price of the US dollar. It is unlikely that a fundamental decision will be made to change direction. However, the biggest surprise in the forex market is likely to come from the Bank of England announcement on Thursday. As the bank seems keen to signal that the end of the rate hike cycle is near, even as it raises interest rates by another 25 basis points in response to higher inflation levels. And the danger for the pound is that it has to navigate a difficult turn leading to intense selling, as it has been throughout 2022.
Today's sterling vs. dollar expectations:
- The general downward trend of the GBP/USD currency pair may continue until the markets react to the policy decisions of both the US Federal Reserve Bank and the Bank of England.
- The bears continue to have the opportunity to test stronger support levels.
- The closest ones are currently 1.2330, 1.2280 and 1.2200 respectively.
- It is preferable to consider buying without risk from the second and last levels.
According to the performance on today's chart, there will be no first break in the downward trend without the currency pair moving towards the resistance levels 1.2630 and 1.2800 respectively.
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