The GBP/USD exchange rate collapsed further into oversold territory on the charts last week, but it still risks further losses that could pull it back to 1.2255 or lower in the coming days. Rising Chinese economic growth risks support the dollar before the latest inflation report in the United States of America. The pound sank further against nearly all the G20's crosses last week. This is in part to a roughly 2% drop in the pound-dollar exchange rate, which fell below 1.25 to enter the new week's trading above the rounded figure from 1.23 after a collapse to the 1.2260 level, the lowest in nearly two years.
Last Thursday's candid assessment by the Bank of England (BoE) of the difficulties likely awaiting the British economy and their constraining implications for interest rate expectations were the dominant drivers of sterling's declines although the dollar also rose.
Friday's payroll data showed a moderation in wage growth in the US in a potentially dampening result to inflation expectations during April, while Wednesday's Federal Reserve decision also appeared as a calming effect on US bond yields and the dollar. However, the inflationary economic effects of the EU's faltering move towards a Russian oil embargo and global market volatility have kept the dollar ahead. The US currency is likely to benefit from growing concerns about the Chinese economic outlook.
This is after Chinese Premier Li Keqiang was widely reported at the weekend that he had called for intensified efforts by the authorities to save jobs and support families as they grapple with the fallout from coronavirus containment measures in major urban centers including Shanghai and Beijing.
The deteriorating economic background and the government's increasing willingness to support Chinese growth pose a downside risk to the renminbi and an upside risk to the USD/CAD pair, which in turn indicates continued headwinds for many other currencies relative to the greenback from early this week.
Accordingly, some analysts are of the opinion that “GBP/USD could remain weak this week due to dollar strength and concerns about the British economy amid the energy price shock. There is downside support for the GBP/USD at 1.2112.”
International headwinds are putting an additional strain on the pound-dollar exchange rate ahead of Wednesday's release of US inflation data for April and Thursday's release of UK first-quarter GDP numbers, both of which are highlights in the coming week for the dollar and the pound, respectively.
According to the technical analysis of the currency pair: The bearish expectations for the price performance of the GBP/USD currency pair are open to the extent that the pessimism situation highlighted by the Bank of England recently remained. Accordingly, the psychological support of 1.2000 may be a legitimate target to continue the momentum of the US dollar from the current factors and from the important economic data for the currency pair this week. On the other hand, according to the performance on the daily chart, the GBP/USD pair will need at least a 500-pips bounce from the current levels to reverse the current downtrend.
