- The GBP/USD exchange rate could record a more determined advance over the coming days as the technical setup improves on short-term time frames and the deeply pessimistic consensus on the UK economy appears to be challenged.
- Therefore, the British pound had a steady performance against the dollar last week, which in fact convey relatively constructive given the market situation since July, which led to a loss of 7.50% from the peak.
- The GBP/USD recovered from last week's losses, which affected the support level of 1.2089, meanwhile, gains extended at the beginning of this week's trading at the resistance level of 1.2252, which was stable around it at the time of writing the analysis.
The GBP/USD Outlook Is Skewed to the Upside Analysts Say
In general, the pound was able to build a defence against the dollar, which should have outperformed given the number of factors that provided it with strong momentum, led by its demand as a safe haven and the continued tightening of the Federal Reserve policy. The US dollar was unable to rise despite increasing tensions over the potential spread of unrest in the Middle East and the rise in US ten-year bond yields to their highest levels in several years, as investors acknowledged that US interest rates are expected to remain at high levels for a longer period.
From a technical perspective, the exchange rate is not a purely buy, but one analyst says the outlook is skewed to the upside. Concurrently, Sean Osborne, Forex analyst at Scotiabank says, “The pound looks weak, but the spot rate has once again found strong support on dips below 1.21,”. Also, the pound’s gains from Thursday’s low have formed a daily “Doji” candle on the chart, indicating a possible bullish shift in the pound. Finally, he adds: “A deeper bounce across the 1.2190/00 resistance is needed to secure gains towards 1.23.”
The pound sterling found itself under pressure last week after the release of a set of local figures that indicated a slowdown in the British economy, but the currency could find salvation if this week's PMI numbers exceed expectations. Therefore, if expectations of a further rise increase, this could be supportive of the British pound. During that, the British employment figures were scheduled to be released last week but were postponed by the Office for National Statistics for technical reasons and are now scheduled to be released today, Tuesday, at 07:00 GMT. Moreover, the investors will look for signs of “recession” in the Labor market to support growing expectations that the Bank of England will continue its interest rate hike cycle.
The headline unemployment rate is expected to remain unchanged at 4.3% in August. Meanwhile, the three-month employment figure is expected to show a contraction of 195,000 workers. Otherwise, if the numbers beat expectations, the pound may find itself supported, but we expect gains to be limited once we notice the pound's inability to rise due to upbeat data (last week's rise in inflation is an example of this).
Overall, it seems that the market has made up its mind about the economic deterioration and needs little call to sell the pound, so disappointment in the numbers may lead to the currency coming back under pressure.
The UK Purchasing Managers' Index (PMI) survey comes at 09:30 and gives a quick snapshot of economic performance. PMIs have been increasingly important to the currency market, which now invests heavily in relative economic growth rates. This means that currencies with higher growth potential are favoured over currencies with weaker prospects, as interest rates are likely to remain high for longer in outperforming currencies. The Services PMI is expected to reach a reading of 49.5, and the Manufacturing PMI is expected to reach a reading of 44.6. The rule of thumb is that GBP will move depending on which side of the forecast the data hits: higher on beat, lower on failure.
GBP/USD Forecast & Outlook
According to the performance on the daily chart below, despite the rebound, the price of the sterling currency pair against the US dollar GBP/USD is still in an early stage of changing direction to an upward one. However, this will not be achieved as a first stage without the bulls moving towards the resistance levels of 1.2340 and 1.2500, respectively. On the other hand, over the same period, hopes for the current rise may be evaporated if the currency pair returns towards the nearby support level of 1.2130, and this will restore expectations for the future of the psychological support of 1.2000 again.
Today, the GBP/USD will be affected by the announcement of British employment numbers, then the PMI readings for the manufacturing and services sectors there as well. Also, the PMI readings for the manufacturing and services from the United States sectors will be announced.
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