The Pound continues to decline, with an important support test ahead
|The number of applications for unemployment benefits in the UK rose by 25.8K in September after three months of decline, totalling 50.8K and a stronger-than-expected 10K increase. The unemployment rate for the three months to August rose to 4.8%, the highest since May 2021, although average forecasts had predicted no change.
The deterioration in the labour market opens the door for softer rhetoric from the Bank of England. In modern history, major developed economies have often moved in lockstep with the Fed when it eased policy. Although the Bank of England did its part earlier this year, it is possible that the slowdown in the US economy will also put pressure on Britain, in addition to tariff disputes, and will be a sobering factor after a period of strong growth in the service sector, which drove GDP upwards after 2022.
The worse-than-expected figures triggered a decline in the pound, which had been gaining on Friday and remained steady on Monday. GBPUSD touched 1.3250, its lowest level since early August. The pair has been on a short-term downward trend for the past seven days. It is also worth noting that the pair reached a local peak on the day of the Fed's key rate cut on 17 September, after which dollar buyers became more active, despite the dovish tone of the news.
Taking a step back, we can see the formation of a double top with highs at the end of June and mid-September.
In its decline over almost a month, GBP/USD is heading towards 1.3140, the 61.8% area of growth from the lows at the beginning of the year to the peaks at the start of July. This level stopped the pair's correction in July, maintaining its growth pattern. Just above, at 1.3180, is the 200-day moving average. Consolidation below these levels would be two confirming signals of a reversal in the dollar trend. But it is also important for us that the dollar has turned to growth despite weak data. Working against fundamental news is a very important indicator of the internal strength and confidence of the bulls.
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