- GBP/USD gains for the first time in four weeks, but downside remains favored.
- Optimism on UK PMI doused by political woes, rail strike and upbeat Powell.
- 61.8% Fibo at 1.2360 is a tough nut to crack for bulls, with eyes on Powell, Bailey.
GBP/USD snapped a three-week downtrend and staged a decent comeback despite a variety of mixed fundamental factors from the UK. A pullback in the US dollar from two-decade highs kept cable afloat, although within a familiar 200-pip trading range. Persistent inflation and recession worries kept investors on edge.
GBP/USD entered a consolidative phase
GBP/USD kept its range between 1.2160 and 1.2360, struggling for a clear directional bias after a slightly upbeat start to the week. After reversing the previous recovery gains on Friday, cable found its feet in the first half of the week, as the greenback resumed its retreat from the highest levels in over twenty years against its major peers. Risk sentiment improved as investors took of the previous week’s sell-off in global stock amid the rate hike announcements by the Fed and BOE. Meanwhile, comments from the UK Junior Treasury Minister Simon Clarke that the UK economy is unlikely to tip into recession underpinned GBP bulls.
Further, cautious remarks from St. Louis Fed President James Bullard on the implications of the bank’s tightening guidance, combined with hawkish BOE commentary, aided the GBP/USD rebound in the early part of the week. BOE policymaker Catherine Mann made a case for a double-dose rate hike in August amid a weaker sterling. Meanwhile, BOE Chief Economist Huw Pill said in a Bloomberg interview that he expects further tightening in the coming months.
The upside lost traction on Wednesday as the return of risk-off flows, and relatively softer UK inflation figures weighed on the GBP/USD pair. The annualized UK inflation rate hit the highest level since March 1982 at 9.1% in May, meeting the market consensus. However, the core CPI inflation (excluding volatile food and energy items) eased to 5.9% YoY last month versus 6.2% booked in April. Markets re-priced the probability of a 50 bps BOE rate hike in August, with the odds declining from 74% to 60% following the mixed UK CPI data. Additionally, the sentiment around the pound was undermined by the UK rail strike, the biggest in over 30 years, as rail unions demanded wage increases to keep up with inflation.
Any modest rebound in GBP/USD remained a good selling opportunity in the second half of the week. The Preliminary UK Services Business Activity Index for June steadied at 53.4 when compared to the expected drop to 53.0. The positive surprise on the UK June Services PMI was quickly sold off into the upbeat testimony from Fed Chair Jerome Powell, where he showcased the central bank’s strong commitment to fighting inflation. On day two of his testimony, Powell said the Fed is committed to bringing inflation back down, and the American economy is very strong and well positioned to handle tighter monetary policy. The dollar received the much-needed boost from Powell, but the upside remained capped by the disappointing US Manufacturing and Services PMI reports, allowing GBP bulls some breathing space.
GBP/USD buyers made another recovery attempt on Friday but struggled to find additional demand following the mixed UK Retail Sales print and the Conservatives Party’s defeat in the parliamentary by-elections. The UK Retail Sales dropped by 0.5% over the month in May vs. a 0.7% decline expected, while on an annualized basis, the gauge plunged 4.7% in May versus a drop of4.5% expected and a 5.7% fall prior. Early Friday, the UK’s ruling Conservative Party lost by-elections, with the loss of two Tory seats after ballots were cast in Wakefield, Tiverton and Honiton, putting PM Boris Johnson’s leadership under the radar.
Week ahead: Central bankers in focus
The week ahead kicks off with the US Durable Goods Orders and Pending Home Sales due for release on Monday. Tuesday will see the US CB Consumer Confidence data and BOE Deputy Governor Jon Cunliffe’s speech. The US data could provide fresh hints on the strength of the economy, which could have a significant impact on the Fed sentiment and the dollar trades.
On Wednesday, traders will brace for the final revision of the US Q1 GDP print. However, a panel discussion titled "Policy panel" at the ECB Forum on Central Banking in Sintra, Portugal will hog the limelight. Fed Chief Powell, ECB President Christine Lagarde and BOE Governor Andrew Bailey will participate in the panel discussion, making it the most awaited event of the week.
The UK final quarterly GDP will be released, followed by the US jobless claims and Core PCE Price Index. The US ISM Manufacturing PMI will wrap up a relatively data-light week. Chatters surrounding a potential recession, UK pollical uncertainty, and central banks’ tightening bets will remain the main market-moving factors ahead.
GBP/USD: Technical outlook
GBP/USD is facing first resistance at 1.2360, where the Fibonacci 61.8% retracement of the latest downtrend is located. The 20-day SMA is reinforcing that level as well. In case the pair manages to clear that hurdle and starts using it as support, this could be seen as a significant bullish development. In that scenario, 1.2500 (50-day SMA) and 1.2600 (the starting point of the downtrend) could be seen as the next bullish targets.
On the downside, 1.2200/1.2220 area (psychological level, Fibonacci 38.2% retracement) aligns as support before 1.2130 (Fibonacci 23.6% retracement) and 1.2000 (the end point of the downtrend).
In the meantime, the Relative Strength Index (RSI) indicator on the daily chart continues to move sideways slightly below 50, suggesting that buyers remain on the sidelines for the time being.
GBP/USD: Sentiment poll
The FXStreet Forecast Poll fails to provide a clear direction clue in the short term. On the one-month view, however, the majority of polled experts remain bullish on GBP/USD with the average target sitting near 1.2400.
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. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Follow us on Telegram
Stay updated of all the news
AUD/USD tumbles to breach 0.6500 as poor China's PMI offsets upbeat Aussie data
AUD/USD is seeing intense selling pressure and breaches 0.6500 after the Chinese NBS Manufacturing PMI sank further into contraction in May. Investors shrugged off hot Australian inflation data and strong Construction Work figures amid resurfacing China economic worries.
EUR/USD battles 1.0700 as China worries lift the US Dollar
EUR/USD is testing 1.0700, retreating from near the 1.0740 region in Wednesday's Asian trading. Dismal China's NBS Manufacturing PMI and pre-US debt deal vote anxiety reinstate the US Dollar's safe-haven appeal. US/ German data, Fedspeak and House vote in focus.
Gold: Bear Cross confirmation to threaten 100 DMA support again Premium
Gold price is fading the previous rebound above the $1,950 mark, as the United States Dollar (USD) is seeing a fresh uptick amid a risk-on market profile. Attention now turns toward the House of Representatives vote on the US debt deal.
Top 3 Price Prediction Bitcoin, Ethereum, Ripple: BTC bulls recovery plan targets $30,000 as bears exhaust
Bitcoin price action slows down, allowing bears to doubt their strength. As more time elapses, the chances of bulls taking over control of BTC become more likely. A spillover effect, should buyers make a comeback, would be noticeable in Ethereum and Ripple prices.
Debt ceiling deal keeps dollar locked in devaluation spiral
Fiscal hawks weren't optimistic when Kevin McCarthy was elected Speaker of the U.S. House. The California Republican's track record was dismal when it comes to spending restraint. Nearly 5 months into his term, it is now apparent McCarthy has no intention of holding the line against government expansion.