Bearish view
- Set a sell-stop at 1.2530 and a take-profit at 1.2450.
- Add a stop-loss at 1.2650.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2600 and a take-profit at 1.2700.
- Add a stop-loss at 1.2485.
The British pound slumped to the lowest level since June as the US dollar index continued soaring. The GBP/USD pair retreated to a low of 1.2535, ~4.35% below the highest level in July.
BoE and Fed likely to pause
The GBP/USD continued slumping as the US dollar index (DXY) soared to the highest level in over 5 months. The greenback has been in a strong bullish trend, helped by the strength of the American economy.
Recent data showed that the economy added over 187k jobs in August while the participation rate rose. The economy expanded by 2.1% in Q2 and analysts expect it to grow by 6% in Q3.
The pair also jumped after signs emerged that the Fed and the BoE will leave interest rates unchanged this month. In a statement, Christopher Waller, one of the most hawkish Fed members, said that the bank will hold rates steady in its September meeting.
The bank raised rates to 5.50% in its last meeting in July in a bid to lower inflation. Recent data showed that the country’s inflation held quite well in July while the unemployment rate rose to 3.8%.
In a separate statement, Michael Saunders, a former Bank of England official, said that the bank was already done with rate hikes. He pointed to the weakness of the UK economy.
Data published on Tuesday showed that the services PMI declined from 51.5 in July to 49.5 in August. While the number was higher than the median estimate of 48.7, it was below the expansion zone of 50. Another report by Nationwide showed that the house price index (HPI) continued falling.
Looking ahead, the next important catalyst for the GBP/USD exchange rate will be the upcoming US services PMI and trade numbers.
GBP/USD technical analysis
The GBP/USD exchange rate continued retreating as demand for the US dollar continued. It retreated to a low of 1.2530, the lowest level since June 13th. It moved slightly below the important support at 1.2550, the lowest level on August 25th.
The pair retreated below the 61.8% Fibonacci Retracement level. At the same time, the pair remains below the 25-period and 50-period moving averages. The MACD moved below the neutral point.
Therefore, the pair will likely continue falling, with the next level to watch being at 1.2450.
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