At the end of last week's trading, the pound sterling traded again under an important level of technical support against the dollar. It is struggling to stay afloat against the euro after the desire to take risks in the international markets stumbled amid a previous rise in government bond yields, which led to increased losses for the pound sterling.
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According to the trading, the price of the GBP/USD currency pair dropped to the lowest support level of 1.2547 in more than two months and closed the week's trading stable around the 1.2576 level. The US dollar received a strong positive wound from the statements of the governor of the American Federal Reserve Bank, Jerome Powell, who during which he confirmed the bank's determination to continue raising the American interest rate.
Forex analyst at RBC Capital Markets says "The US dollar was supported by the rise in US interest rates and the US dollar index DXY traded above the 104 resistance. The barter market is putting a little more chance than just lifting the Federal Reserve again by the Federal Market Committee open to the FOMC in November, and this possibility is gradually increasing. At the same time, there are news reports stating that the People's Bank of China has asked some local banks to reduce their investments in foreign bonds through the Bond Connect channel, in another sign of the strengthened measures to defend the renminbi.
Sterling has remained well supported between around 1.26 and 1.2632 since early June, but the level fell between the close of trading in London and New York on Thursday. GBP/USD's losses deepened between US Treasury bond auctions and a bigger sell-off of 30-year inflation-linked bonds late in the European session.
This is added to the expected new supply coming to the market as the Treasury Department seeks to rebuild and strengthen cash balances that were previously depleted during the run-up to the US government debt ceiling in April.
Demand for U.S. bonds was stronger than in previous auctions but came at the expense of higher yields and amid conflicting messages from Fed officials regarding interest rate expectations. In this regard, Ian Shepardson, chief economist at Pantheon Macroeconomics, says: "The official position of the Federal Open Market Committee (FOMC) is that more interest rate hikes "might" be necessary, but they are now dependent on the data and will make their decisions on a meeting-by-meeting basis." And "we see no reason to believe that Mr. Powell is now ready to abandon this obvious choice."
However, for its part, sterling was already under pressure earlier after the Confederation of British Industry (CBI) said sales and employment levels were likely to fall among the UK's biggest retailers during August. It added last Thursday's losses to Wednesday's declines when S&P global PMI surveys warned of sluggish conditions in manufacturing and services industries, which suffered from rising costs and falling consumer demand.
Today's sterling vs. dollar expectations:
- According to the performance on the daily chart below, the price of the sterling currency pair against the US dollar GBP/USD in its downward path.
- Its recent losses are sufficient to push the technical indicators towards strong selling saturation levels.
- One can consider buying the currency pair without risk from the support levels 1.2500 and 1.2410 respectively.
The sterling dollar pair may remain on its downward path until the reaction to the announcement of the important US jobs numbers this week. There will be no reversal of the general upward trend without returning to the psychological resistance of 1.3000 again. This first requires a return to the 1.2850 resistance.
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