- On Monday, the GBP/USD plunged nearly 200-pips, losing almost 1.50%.
- US Federal Reserve expectations of a 75 bps rate hike at the Wednesday meeting keep mounting.
- The UK April’s Gross Domestic Product (GDP) shrank for the second straight month.
The GBP/USD tanked to fresh two-year lows around 1.21054 but slightly recovered as investors assessed the news that the US Federal Reserve might hike 75 bps on a news piece published by the WSJ. Additionally, the UK’s GDP in a monthly reading contracted, by 0.3%, fueling expectations that the UK is headed into a recession as the Bank of England hikes rates again. At the time of writing, the GBP/USD is trading at 1.2129.
The greenback benefits from risk-aversion and US Fed rate hikes expectations
Concerns that the US Federal Reserve would tighten more than 50 bps following a worse-than-expected US inflation report shifted sentiment sour. Reflection of the previously mentioned is US equities tumbling between 2.80% and 4.81%. Contrarily, US Treasury yields rose, while the greenback gained more than 1%, reaching a two-decade high, around 105.285.
A Wall Street Journal news piece stated, “A string of troubling inflation reports in recent days is likely to lead Federal Reserve officials to consider surprising markets with a larger-than-expected 0.75-percentage-point interest rate increase at their meeting this week,” further weighed on sentiment.
Elsewhere, China’s coronavirus headlines weighed on the already battered mood. According to Reuters, a Covid-19 outbreak linked to a bar, traced by authorities, with millions facing mandatory testing and thousands under targeted lockdowns. The re-emergence of infections raises worries about China’s economic outlook.
Earlier in the European session, the Office of National Statistics (ONS) reported that Gross Domestic Product (GDP) fell by 0.3% in April; but the 3-months to April 2022 rose by 0.2%. Services fell by 0.3%, and it was the main contributor to GDP’s fall, reflecting a decrease of 5.6% in human health and social work. Production fell by 0.6%, attributed to a fall in manufacturing of 1% on the month, as businesses continue to report the impact of price increases and supply chain shortages.
Monday’s GBP/USD price action witnessed the ongoing Sterling weakness. A weaker than expected GDP maintains investors’ expectations that the Bank of England would continue hiking rates, despite the current economic outlook. Therefore, despite the BoE’s rising rates, the GBP/USD is headed to the downside and, during the day, dropped nearly 200 pips as sellers prepare for a test of the 1.2000 figure.
An absent US economic docket left GBP/USD traders adrift to the market sentiment that ultimately benefitted the USD, a headwind for the GBP/USD.
Key Technical Levels
GBP/USD
Overview
Today last price1.2129
Today Daily Change-0.0186
Today Daily Change %-1.51
Today daily open1.2315
Trends
Daily SMA201.2515
Daily SMA501.265
Daily SMA1001.2998
Daily SMA2001.3271
Levels
Previous Daily High1.2518
Previous Daily Low1.2301
Previous Weekly High1.2599
Previous Weekly Low1.2301
Previous Monthly High1.2667
Previous Monthly Low1.2155
Daily Fibonacci 38.2%1.2384
Daily Fibonacci 61.8%1.2435
Daily Pivot Point S11.2238
Daily Pivot Point S21.2161
Daily Pivot Point S31.2022
Daily Pivot Point R11.2455
Daily Pivot Point R21.2595
Daily Pivot Point R31.2671
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