GBP/USD plummets below 1.3700, on US dollar strength, ahead Fed and BoE week
|- GBP/USD accumulates to its weekly losses, breaking below 1.3700.
- Due to month-end flows and the London fix, GBP/USD plummeted almost 80 pips in the last three hours.
- US Core PCE for September remains steady at 3.6%, as the Fed’s November meeting approaches.
The GBP/USD slides for the third time in the week, looking forward to ending the week in the red, down 0.67%, trading at 1.3696 during the New York session at the time of writing. Worse than expected, heavy-tech US Q3 corporate earnings on Thursday and concerns about inflation and tight monetary policy dampened market sentiment, weakening risk-sensitive currencies like the British pound.
In the last three hours, the GBP/USD pair has shed almost 80 pips, which also could lie on month-end flows, or profit-taking ahead of a critical Federal Reserve and Bank of England monetary policy week. Furthermore, US T-bond yields are flat at press time, with the 10-year benchmark note steady at 1.56%, while the US Dollar is reversing Thursday losses, as the US Dollar Index is rallying 0.62%, to sit at 93.93.
Meanwhile, scalations of the conflict between the UK and the Eurozone would open another chapter in their negotiations. The British PM Boris Johnson and France President Emmanuel Macron will meet this weekend after a conflict post-Brexit fishing rights. In the week, France seized a British boat, and London threatened to retaliate against French fishers.
Just breaking at press time, the European Commission has told member states that the role of the European Court of Justice in the North Ireland protocol is not up for discussion.
Fed’s favorite measure of inflation, the Core PCE unchanged at 3.6% versus August reading
On the macroeconomic front, the UK economic docket is absent.
Across the pond, the Federal Reserve’s favorite measure of inflation, the Core PCE for September, rose by 3.6% on a yearly basis, a tick lower of the estimations and in line with the previous month. Further, in its final reading, the University of Michigan Consumer Sentiment Index drops to 71.7 in October, against 71.4 expected.
That said, GBP/USD prepare for the next week, as the central banks of both countries will host their monetary policy meetings. Regarding the US, the Fed is expected to announce the QE reduction by $15 billion a week, to begin by mid-November. Concerning the UK, market participants expect a rate hike by the BoE.
GBP/USD Price Forecast: Technical outlook
Daily chart
On Wednesday, the GBP/USD pair broke below a daily bearish flag, but on Thursday, trimmed some of its losses but failed to get back above the bottom of the channel. Wednesday’s momentum carried today, as the GBP/USD collapsed below the bottom trendline. It is also testing the 50-day moving average (DMA), which could spur additional losses for the British pound if it breaks it lower.
Further, the Relative Strength Index (RSI) is at 49, aiming lower, indicating the British pound is under strong selling pressure, favoring USD buyers.
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