It is noticeable that the GBP/USD currency pair is trying, in light of the strength of the US dollar, to avoid a collapse below the psychological support 1.3000 so as not to increase the current downtrend. Yesterday, the currency pair tested the support level 1.3045 and settled around the 1.3085 level at the time of writing the analysis, waiting for anything new. Meanwhile, the pound rose sharply against the broadly weaker euro during the first half of the week but may struggle to advance beyond the near 1.20 level and remain vulnerable from a strong dollar as market attention turns to react to the Fed's tightening path.
Sterling was on track for a triple gain against the euro after the Group of Seven nations and the European Union proposed new sanctions over alleged Russian atrocities in Ukraine, including a ban on entry to Russian ships and trucks as well as on purchases of Russian coal.
Such measures will further undermine the Russian economy but could also prove costly to Western countries especially those in Europe where economic ties with Russia are deeper, which may explain why the Euro is among the biggest declines so far in this week's trading. For its part, the Russian government described the allegations about Bucha, Ukraine, and the events behind it as “heinous fraud,” but Western countries took the “strike first and ask questions later” approach in their response by immediately reaching the baton of sanctions.
Commenting on the performance, ING Bank's Turner said, “Rising political risks in the eurozone ahead of the French elections could keep some pressure on the pair, although the cable may continue to fall on the back of good momentum in the dollar and negative impact on the pound from new sanctions against Russia. “. Some analysts also recently cited uncertainty over the outcome of France's looming presidential election in April as a potential heavyweight on the euro, which also remains vulnerable to any potential pivot in Europe to consider sanctions on Russian oil and gas.
“With the war in eastern Ukraine continuing, and the risks of an energy supply shock still present, we believe both the euro and the British pound are at risk,” says Stephen Gallo, FX analyst at BMO Capital Markets.
In turn, the US dollar rose broadly, adding to declines in the GBP/USD and EUR/USD after two US policy makers warned that the Federal Reserve may elect as soon as next month to start shrinking its budget. The global market is approaching $9 trillion faster than the financial markets. These comments came ahead of the release of the Federal Reserve's meeting minutes, in which Fed Chairman Jerome Powell previously said it would contain details of the bank's plan for the operation known as "quantitative tightening", including the size of the targeted reduction in the monthly balance sheet.
This presents an upside risk to US government bond yields and other potential downside risks to the pound against the dollar and the single European currency.
As I mentioned before, the price of the GBP/USD currency pair will try hard to avoid a breakdown below the 1.3000 psychological support so as not to increase the control of the bears, and accordingly the currency pair is subjected to testing strong and sharp support levels. So far, the pair's outlook is bearish, and there will be no change in that outlook without returning to the resistance area 1.3335. Currently, the closest support levels for the controlling bears are 1.3020, 1.2945 and 1.2880, respectively. The currency pair will be affected today by the reaction to what was released in the Federal Reserve minutes, as well as the announcement later in the day of the number of US weekly jobless claims.
