- GBP/USD has failed to regain its traction following Tuesday's drop.
- Near-term technical outlook suggests that buyers remain on the sidelines.
- Focus shifts to US data and the Fed's May meeting minutes.
Following the sharp decline witnessed on Tuesday, GBP/USD has failed to stage a convincing rebound. The near-term technical outlook shows that sellers look to dominate the pair's action and a four-hour close below 1.2500 could open the door for additional losses.
After the disappointing PMI data from the UK, which revealed a significant loss of momentum in the private sector's business activity, investors seem to be reassessing the Bank of England's (BOE) rate outlook. In its latest policy statement, the BOE warned about the recession risks in 2022. Hence, the worsening economic conditions could force the central bank to adopt a cautious stance with regard to further tightening steps.
In addition to the British pound's dismal performance, the renewed dollar strength is weighing on GBP/USD as well.
The US Dollar Index, which tracks the greenback's performance against a basket of six major currencies, is already up more than 0.5% on a daily basis. The benchmark US T-bond yield holds steady near 2.75% following Tuesday's sharp decline, allowing the dollar to hold its ground against its rivals.
In the second half of the day, the US economic docket will feature the April Durable Goods Orders data. More importantly, the FOMC will release the minutes of its May policy meeting. Market participants will look for fresh insights into the policymakers' views on 75 basis points rate hikes. Moreover, discussions surrounding the balance sheet reduction will be scrutinized as well. In case the publication shows that policymakers remain confident about the US economy continuing to expand despite the contraction recorded in the first quarter, the dollar should be able to preserve its strength.
On the other hand, the greenback could lose interest in case the minutes confirm that the Fed will hike the policy rate by 50 basis points in June and July and assess conditions before deciding on the next step.
GBP/USD Technical Outlook
GBP/USD broke below the ascending trend line coming from mid-May after having managed to hold above that level on Tuesday. Furthermore, the Relative Strength Index (RSI) indicator on the four-hour chart is now below 50, confirming the bearish shift in the near-term outlook.
As of writing, the pair was trading near 1.2500 (psychological level, static level) and a four-hour close below that level could open the door for an extended slide toward 1.2450 (static level, 50-period SMA) and 1.2400 (psychological level, 100-period SMA).
On the upside, 1.2550 (static level) aligns as first resistance before 1.2580 (static level) and 1.2625 (200-period SMA).
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