Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.1330.
- Add a stop-loss at 1.1600.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.1600 and a take-profit at 1.1700.
- Add a stop-loss at 1.1500.
The GBP/USD price came under pressure after Lizz Truss became the 56th prime minister of the UK and after the mixed US non-manufacturing PMI data. It dropped to a low of 1.1520, which was slightly below this week’s high of 1.1607.
US dollar strength and Lizz Truss
The GBP/USD price dropped after Lizz Truss delivered her first speech as the new Prime Minister. In it, she unveiled the three main pillars of the new administration. First, she promised to tackle the soaring energy prices. One of her plans will be to freeze energy price increases that are scheduled to happen in October. Analysts believe that the plan could cost as much as 200 billion pounds.
Her other pillars will be on tax cuts and investing in the struggling National Health Service. The pound retreated after her speech while the bond sell-off continued. Sterling wavered because her speech was in line with what analysts were expecting.
The yield of the 10-year government bond crossed past 3%, which was the highest level since 2011. This rally happened as investors predicted that her administration will usher in a new era of public spending.
The GBP/USD pair retreated after the relatively strong US dollar. Data from the US sent a mixed picture about the services sector. According to S&P Global, the country’s services PMI dropped from 47.7 in July to 44.6 in August. This decline was worse than the median estimate of 45.0. On the other hand, another figure by the Institute of Supply Management (ISM) showed that non-manufacturing PMI rose from 56.7 to 56.9 in August.
The next key catalyst for the GBP/USD price will be the latest Halifax price index data. It will also react to an important speech by Andrew Bailey, the head of the Bank of England (BoE). He will likely talk more about monetary policy now that the economy is expected to sink to a recession.
GBP/USD forecast
The GBP/USD price has been in a strong bearish trend since August when it peaked at 1.2295. Last week, the pair managed to cross the important support level at 1.1753, which was the lowest level on July 14. It has also moved below all moving averages and the standard pivot point.
The pair’s MACD has moved below the neutral level. Therefore, it will likely continue falling as sellers target the second support at 1.1330.
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