GBP/USD Forecast: More falls ahead of a long weekend? Three reasons to prefer the downside


  • GBP/USD has been under pressure as UK Retail Sales missed expectations. 
  • The dollar is gaining ground amid growing Sino-American tensions, now also around Hong Kong.
  • The specter of negative rates is also weighing on the currency pair, which has failed to recapture significant resistance.

Going short pound/dollar ahead of a long weekend? That seems to be the order of the day on Friday, ahead of holidays in both the US and the UK. Avoiding risk is ahead of the day off is not the primary reason for the downside bias – there are three major reasons.

1) Weak UK data

Retail Sales plunged by 18.1% in April, worse than 16% expected and on top of minor revision. Similar disappointments were recorded also in statistics excluding fuel and in annualized falls. Headline expenditure collapsed by 22.6% year on year. 

The downbeat data joins a surge of 856,500 in the Claimant Count Change – jobless claims – and a plunge in inflation to 0.8% yearly. How long can sterling resist the economic pressure? It is showing signs of cracking.

2) Rising Sino-American tensions

Similar to the accumulated effect of British economic figures, relations between the world's largest economies have been mounting and markets are finally taking note. China aims to tighten its hold on Hong Kong, legislating a security law that bypasses the city-state's elected officials. The moe is angering Washington and is set to trigger protests in one of Asia's most significant financial hubs.

The safe-haven US dollar is on the rise in response to the souring market mood. 

The row joins Washington's bipartisan efforts to scrutinize Chinese firms and Beijing's vow to retaliate. The silver lining is that both countries pledged to hold up Phase One of the trade deal. That could alleviate pressures on markets and send the greenback down, but the chances seem low as it is already priced in.

3) Negative interest rates

Andrew Bailey, Governor of the Bank of England, opened the door to setting sub-zero borrowing costs when he spoke to lawmakers earlier this week. Bailey said he changed his mind amid the pandemic and that the topic is under active review.

His views contrast those of the US Federal Reserve – which even failed to mention negative rates in its meeting minutes. That divergence on interest rates is weighing on GBP/USD.

See Negative Rates: Only good for downing currencies?

In both countries, COVID-19 cases are declining, yet remain stubbornly high. Britain is set to acquire antibody tests to see how much the disease has spread among the population, yet results may take time. 

Source: Financial Times

GBP/USD Technical Analysis

Pound/dollar has slipped below the 50 Simple Moving Average on the four-hour chart after battling it for several days. Upside momentum has all but disappeared and downtrend resistance is looming. All in all, bears are gaining ground.

Support awaits at 1.2185, which was a slow point earlier this week, followed by 1.2165, a former double bottom. May's low of 1.2085 and the psychologically significant level of 1.20 is next. 

Looking up, resistance is at 1.2250, a high point on Thursday, and a support line in April. The next caps are 1.23, the weekly high, and then at 1.2340 and 1.2370, both stepping stones on the way down. 

 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Feed news

Latest Forex Analysis


Latest Forex Analysis

Editors’ Picks

EUR/USD picks up bids above 1.2100 despite indecision over reflation fears

EUR/USD consolidates the previous day’s losses amid quiet markets. The currency major pair fails to extend the previous day’s pullback from a 10-week high as market sentiment dwindles.

EUR/USD News

GBP/USD: Monthly channel’s resistance probe bulls above 1.4100

GBP/USD wobbles near late February tops after the heaviest run-up in three weeks. Immediate hurdle, RSI conditions suggest pullback towards previous key resistance. Multiple confluences will offer a bumpy ride to the bears, bulls aim for yearly top.

GBP/USD News

Gold: Bulls remain defensive near $1,840

Gold is consolidating gains sub $1,840 level in the Asian session. The price of gold possessed a rangebound movement between  $1,830 and $1,838. On the hourly chart,  the downward sloping line from the previous day’s high of $1,845.46, acts as a wall of defense for gold. 

Gold News

EUR/USD picks up bids above 1.2100 despite indecision over reflation fears

EUR/USD consolidates the previous day’s losses amid quiet markets. The currency major pair fails to extend the previous day’s pullback from a 10-week high as market sentiment dwindles.

EUR/USD News

Currencies tumble as stocks erase gains

What started off as a strong day for risk appetite turned into losses for currencies and equities. The Dow Jones Industrial Average and NASDAQ hit record highs at the start of New York trade but peaked shortly after, shedding their gains to end the day lower.

Read more

Majors

Cryptocurrencies

Signatures