- After a series of five consecutive daily losses, it is difficult to describe the outlook for GBP/USD as anything other than weak.
- Meanwhile, this week witnesses the release of important data from the United States of America and Britain, which could support the pound sterling and prevent any major collapse.
- Since the start of this week's trading, the price of the British pound against the US dollar has been stable around the resistance level of 1.2280, recovering from last week's losses that affected the support level of 1.2186.
Fundamentals Favor the US Dollar
However, the barrier to a permanent rise in GBP remains high, and all signs point to the possibility of further US dollar strength pushing GBPUSD lower. In this regard, Sean Osborne, senior Forex analyst at Scotiabank, says that the short-term technical indicators are bearish. The analyst added, “Continued losses throughout the week pushed the pound sterling back near the lowest level it recorded last Friday, just below 1.22.” Short-term trends look weak, and losses during the week indicate that the soft tone may extend.” Therefore, the analyst is looking for 1.22 to act as a short-term pivot point, as any weakness below indicates a risk of extending losses to retest the 1.20/1.21 area.
In general, this week is full of data on wages, inflation, and retail sales for the pound. Average wages are scheduled to be released at 07:00 GMT today, Tuesday, with a reading of 8.3% expected in September. If the result is higher than that, the pound may find some support. The highlight of the week is the UK inflation report on Wednesday, due at 07:00, as the market prepares for a significant decline to 4.5% y/y from 6.7%. If the result is above this number, the pound could find support, although we expect any strength to be limited.
furthermore, if inflation falls below the desired level, the market is likely to strengthen bets on a cut in interest rates in 2024, leading to further weakness in the pound. Also, British retail sales are expected to decline by 1.0% year-on-year until October and 0.9% month-on-month. If the result is higher than these estimates, the pound may rise, although gains will likely be limited. Instead, the risks are tilted to the downside if the outcome is less than estimated.
In contrast, US inflation is also the highlight of the week for the US dollar, with markets looking for inflation to rise by 0.1% month-on-month in October, down from the previous month's gain of 0.4%. The core CPI is expected to remain unchanged at 0.3%. moreover, the rule of thumb is that if inflation exceeds expectations, the odds of the Fed raising interest rates again decrease and bets on a rate cut decline. This will support US bond yields and the dollar.
Overall, the market will be particularly nervous heading into the release, given the strong response by Federal Reserve officials last week against what they consider to be premature expectations of a US interest rate cut. The dollar rose after Fed Chairman Powell warned last Thursday that the Fed was “not confident” that interest rates were high enough.
GBP/USD Trading Outlook
According to the performance on the daily chart below, the price of the British pound against the US dollar GBP/USD is at the beginning of the stage of breaking the general downward trend. Recently, the bulls needed to move the currency pair towards the resistance levels of 1.2340 and 1.2460 to move in this break on strong foundations. But until now, we still prefer to sell the GBP/USD pair from every rising level, as the pressures on the sterling are strong and continuing. On the other hand, over the same period, the movement of the GBP/USD pair towards the support level of 1.2160 will end the current upward rebound attempts.
Shortly, today's data will have an impact on the currency pair and indicate the direction for the rest of the trading week.
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