Pound at three-month low: What happens next?

RoboForex Analysis Department RoboForex

GBP/USD fell to 1.3203 on Friday, marking a three-month low. The pound remains under pressure from a strong US dollar, expectations of further Federal Reserve rate hikes and a deteriorating economic outlook amid elevated oil prices.

Bank of England Deputy Governor Clare Lombardelli said that while energy prices remain high, interest rates may need to rise further – unless the economy shows clear signs of weakness. She has previously indicated that the case for tighter monetary policy is strengthening.

At the same time, disagreements remain within the Bank of England. MPC member Swati Dhingra, who maintains a dovish stance, believes that inflation expectations do not yet pose a serious threat.

Markets continue to price in a high probability of a 25-basis-point Bank of England rate hike in November. However, this has yet to provide meaningful support for the pound, as the US dollar strengthens amid hawkish Fed rhetoric and robust US PMI data.

Technical analysis

On the H4 GBP/USD chart, the market completed an upward move towards 1.3255, followed by a decline to 1.3205. The pair is now continuing its downward move towards 1.3175.

The MACD indicator supports the bearish scenario. Its signal line remains below zero and is pointing firmly downwards.

On the H1 GBP/USD chart, the market has formed a narrow consolidation range around 1.3271, currently extending downwards to 1.3220 and upwards to 1.3256.

A further decline towards 1.3190 and subsequently 1.3175 is expected.

The Stochastic oscillator supports this bearish scenario. Its signal line remains below 50 and points firmly downward, with a move toward 20 expected in the short term.

Conclusion

GBP/USD has fallen to a three-month low as the pound struggles against a broadly stronger US dollar, supported by expectations of further Fed tightening and robust US economic data. While Bank of England Deputy Governor Clare Lombardelli has indicated that further rate hikes may be necessary if energy prices remain high, disagreements persist within the MPC, with Swati Dhingra maintaining a more dovish stance. Elevated oil prices continue to cloud the UK economic outlook, adding to the pressure on sterling.

From a technical perspective, GBP/USD remains under pressure, with a further decline towards 1.3190 and subsequently 1.3175 expected in the near term. The pound’s direction will depend on upcoming UK data and whether the US dollar’s rally shows signs of exhaustion.

Author

RoboForex Analysis Department

RoboForex

RoboForex Analysis Department provides timely market insights, expert technical analysis, and actionable forecasts across forex, commodities, indices, and equities.

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