Sterling fell to fresh six-month lows against the dollar as the sell-off continued for a 10th week, leaving analysts wondering if there is any prospect of relief before the 1.20 psychological support level comes back into effect. According to this week's trading, the price of the GBP/USD currency pair has fallen towards the support level of 1.2110, the lowest it has been in six months.
The GBPUSD exchange rate is now down 7.0% – from a high of 1.31 – over the past nine weeks, pushing it into oversold territory, According to the daily RSI, the GBP/USD pair continues its decline and hit a new 6-month low. It has broken the $1.22 support, which means that the value of the pound has decreased by more than 7% against the US dollar during the last nine weeks.
All eyes are directed towards the psychological support level of 1.2000. The drop in sterling is due to the rapid reduction in interest rate expectations in the UK since the Bank of England stopped its rate hike cycle and has given little evidence that it intends to raise rates further. According to the analysts "there is now a less than 50% chance that the Bank of England will raise interest rates again this cycle, which means that markets are pricing in the current rate of 5.25% as the peak rate for the bank compared to the peak of 6.5% that was priced in just two months ago when the pound sterling has been priced. The sterling was trading above $1.30".
Meanwhile, the US dollar continues to lead the rest of the major currencies thanks to rising US bond yields, reflecting investors' realization that the Federal Reserve will not be cutting US interest rates anytime soon. Indeed, Federal Reserve Board member Neil Kashkari said on Monday that raising interest rates again was necessary before the end of the year as the US economy proved stronger than expected.
He was one of 12 policymakers who expected another rate hike this year. And the prospect of longer interest rate hikes in the United States has pushed U.S. bond yields higher, drawing foreign capital into U.S. bonds, pushing the dollar higher.
Meanwhile, rising bond yields make the cost of borrowing more expensive, increasing fears of a US and global slowdown, which also strengthens the dollar through safe-haven demand. Despite the strength of the dollar's rise, some are now looking forward to a recovery, albeit one that will be very limited in scope and duration.
Some analysts are looking to some potential key technical levels in the GBP/USD exchange rate to provide support that could facilitate a bounce. As the 38.2% retracement from its all-time low below $1.04 to its year-to-date high of $1.3144 is $1.2089, but before that, the 76.4% retracement from this year's low to high is at 1.2120 dollar. The levels are key downside targets but should also provide much needed support to the pound.
Today's sterling vs. dollar expectations:
- Prior to the announcement of the US economic growth figures the bears maintain strong control over the performance of the GBP/USD currency pair.
- This is evident in the movement of the technical indicators towards strong selling saturation levels.
- The positivity of the United States data today does not rule out the sterling/dollar moving towards the psychological support of 1.2000 again.
- On the contrary, the weak results may give the sterling pair against the dollar GBP/USD an opportunity to rebound upwards and the breaking of the 1.2320 resistance will be the first stop for an upward rebound.
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