The exchange rate of the pound sterling against the dollar GBP/USD rose initially following the monthly US jobs report which received a lot of attention last week. It then ended the day with a sharp decline in losses past the 1.2577 support level and settled around the 1.2630 level at the time of writing the analysis. The price movement that confirms the difficulties of betting against the US dollar at the present time.
The American jobs report was mixed, with a better-than-expected increase in jobs for the month of August balanced against a rise in the unemployment rate and lower-than-expected wages. Therefore, the report does not change the index of interest rate hike expectations by the US Federal Reserve (the market believes that the Fed has probably completed the interest rate hike cycle), but it also means that we do not have any game changer that would stop the dollar's recovery The persistent American.
A look at the charts for the pound confirms these broader trends, with the exchange rate falling by around 1.25% in August and September, starting from a slight dip. Commenting on that, Bill McNamara, the analyst who heads The Technical Trader, says that the weekly chart shows that the British currency has been in decline since it peaked at $1.313 in mid-July. He added by saying "despite its stability last week, the fact that it declined over the course of Thursday and Friday indicates that there may be room for further weakness in the near term."
He notes that the August closing low was at 1.2577 and the general impression is that this level is likely to break before long. In this case, the next potential support area would be at around 1.242; And if that doesn't hold, we could see a bounce back to the main bottom that was recorded near the end of May, that is at 1.232 or so."
The pound is being pushed mainly by the US dollar side of the equation, a scenario that should extend this week given the empty UK data calendar. However, it is worth noting that some members of the Bank of England's Monetary Policy Committee will appear before Parliament's Treasury Committee on Wednesday, where they will be questioned about the latest developments in UK inflation and interest rates.
In line with Bank of England Chief Economist Huw Bell's comments, we expect MPC members to signal that inflation remains alarmingly high which will lead to more interest rate hikes, boosting market expectations for another 25 basis point hike next September. But at the same time, MPC members will tell MPs that recent weak inflation data has been encouraging, and this should ensure that the market's pricing for a further hike in November remains less certain.
Any downward shift in expectations for a rate hike in November could weigh on sterling overall.
The US side of the GBP/USD equation is the dominant driver and this week's calendar focus is on the mid-week release of the ISM Services Purchasing Managers' Index for August. The markets are looking for a reading of 51 points, a decrease from the July reading of 52.3 points, with the possibility that the decrease will lead to an undermining of the dollar, and prove the opposite at any rate. Before the release of the American jobs report last week, the dollar was under some pressure after the data on job opportunities in the United States showed a clear downward trend in the volume of vacant jobs. It is likely that how this probability changes in the wake of the upcoming data will affect how American bonds and the dollar develop in the coming days.
Recent inflation readings continue to indicate that US inflation is trending back closer to the Fed's 2.0% target, with last week's Personal Consumption Expenditure report, for example, showing the headline price index rose 3.3% and the core 4.2% on annual basis.
Today's sterling vs. dollar expectations:
- There is no change in my technical point of view.
- The general trend of the sterling currency pair against the dollar GBP/USD is still downward.
- Its recent losses are enough to push the technical indicators towards strong sell saturation levels.
- One can consider buying from its lowest levels with no risk from 1.2540 and 1.2470 respectively.
The 1.2850 resistance level may be important for the bulls' control because it will push it to the 1.3000 psychological resistance after that, the most important level to change the direction of the currency pair to an upward one.
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