- At the end of last week's trading, the price of the GBP/USD pair fell by 0.5% after the US dollar rose broadly following the US Federal Reserve chairman raised renewed expectations for further US interest rate hikes, expressing concern that inflation would remain very high in the coming months.
- As a result, the GBP/USD pair plunged to the support level of 1.2186 on Friday before closing the week's trading around 1.2225.
Pound Sterling Found Little Momentum Following UK Data
Overall, Federal Reserve Chairman Jerome Powell was in no mood to think about cutting US interest rates, reiterating in a scheduled speech that interest rates may have to rise again. Powell said the Fed is “not confident” that US interest rates are high enough to curb inflation and may not get much help from improvements in the supply of goods, services, and Labor. He added: “We are aware of the risk that strong growth will undermine further progress in restoring balance in the labour market and reducing inflation, which may require a response from monetary policy.”
The tone of his speech at the International Monetary Fund in Washington was more “hawkish” than that of the post-Fed meeting speech he gave a week ago after another decision to keep US interest rates unchanged. The decision prompted markets to reduce expectations for further rises and place bets on lower interest rates, leading to lower US bond yields and a weaker dollar. But these developments could be viewed as inflationary, and therefore inconsistent with the Fed's agenda, prompting Powell to respond forcefully.
Commenting on the event and its impact, “US 10-year bond yields appear to have established a clear base around 4.50% after Powell's tough comments, which means the DXY (dollar index) has also found a near-term low just below 105,” says Richard Franulovich, an expert at Westpac.
In contrast, a series of UK economic growth figures exceeded expectations, but the pound sterling found little momentum and is likely to remain under pressure in the coming days as markets relentlessly raise expectations for interest rate hikes from the Bank of England in 2024. Meanwhile, UK GDP for the third quarter was flat at 0% on a quarterly basis, better than the expected -0.1%, helping growth to rise 0.6% on an annual basis in the third quarter, higher than the 0.5% figure that markets had been expecting.
For its part, the UK's Office for National Statistics said September saw a surprise 0.2% monthly growth, better than the expected flat outcome. A surprise rebound in the construction sector is highlighted, with a rise of 0.4% monthly in September, beating expectations of -0.5% and August's result of -0.8%. Production of services – which represents the largest sector in the economy – grew by 0.2% in September 2023 after growing by 0.3% in August 2023.
GBP/USD Trading Outlook
Recent performance confirms our technical view of selling the GBP/USD pair from every upward level, as the pound is still receiving a bleak outlook towards economic recovery and the future of the Bank of England's tightening policy. In contrast, the US dollar is being bought by investors as safe haven and the US Federal Reserve is racing in the pace of its tightening policy.
Nearby, according to the performance on the daily chart below, the movement of the GBP/USD pair towards the support level of 1.2150 could support the stronger downward movement towards the psychological support of 1.2000. On the other hand, and on the same period, bulls need to move the GBP/USD pair towards the resistance levels of 1.2440 and 1.2560, respectively, to change the general direction, which is still bearish.
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