- GBP/USD turns into risk averse at the start of the US session.
- The British pound is vulnerable to UK economics and politics.
- The rise in the US Dollar was driven by strong US economic data.
- The Federal Reserve’s terminal rate is the engine of the US dollar.
pounds sterling The US is under pressure in the session as risk appetite on Wall Street eased. Major US indices declined on better-than-expected services sector activity, raising concerns that the US Federal Reserve will continue its aggressive tightening policy despite fears of a recession next year.
At the time of writing, GBP/USD is down 0.78% so far after falling from a high of 1.2344 to a low of 1.2162. The US dollar is rising in a risk-on environment, as early investor enthusiasm for signs of a possible easing of Covid restrictions in China faded and some speculation that the Federal Reserve may not be able to swing into early December.
US economic data improves outlook for the dollar
The Institute for Supply Management (ISM) said its non-manufacturing PMI rose to 56.5 last month from 54.4 in October, indicating that the services sector, which accounts for more than two-thirds of US economic activity, The US continues to oppose the hike. Rate of interest. The data beat expectations that the non-manufacturing PMI would fall to 53.1. Surprising data on non-farm payrolls and wage growth in November, as well as a pick-up in consumer spending in October, have raised optimism about the prospect of avoiding a recession in 2023.
Federal Reserve views
These data contrasted with a recent weak consumer price index, earlier ISM data and comments from Federal Reserve Chairman Jerome Powell, which combined, began to weigh on the market’s assessment of a terminal rate falling below 5%. Ahead of the nonfarm payrolls report, the rate was seen peaking at 4.75%-5% ahead of the report. However, the Fed is now expected to raise its policy rate, currently in the 3.75%-4% range, to 4.92% in March next year, and to the 5% range-5.25% in May, according to futures contract prices and the CME Fed. Watch Tool.
In the short term, however, Fed Chairman Jerome Powell said last week that the US central bank could slow the pace of its rate hikes “until December”. The pace of rate hikes when they meet on December 13-14, instead of adding to the series of rate hikes by 75 basis points in the previous four meetings.
GBP/USD remains bearish
Money managers are bearish on the British pound, according to the latest weekly data from the Commodity Futures Trading Commission (CFTC).
However, net short positions are reducing and are now more than 50% lower than the depth seen at the start of the year, but this is largely because the US dollar is cutting in an improved risk-on environment. However, while there is little room for stronger rallies in sterling, a reversal in risk appetite could leave the currency open to a sharp decline.
On the spot, the pound has gained a significant amount of ground against the softer dollar, Rabobank analysts said.
British politics in the spotlight
,,Although the UK political landscape has been calm since the beginning of Prime Minister Rishi Sunak’s tenure, neither the economy nor the party itself is proving easy to manage,” argued the analysts.
Recessionary conditions appear to be strengthening, strikes are on the rise and many Conservatives have already indicated they would rather accept defeat in a general election than face the prospect that the party could be in opposition for a few years. analysts added.
Prime Minister Rishi Sunak, in power for just over a month, faces a host of problems ahead of polls showing the Conservatives will lose, which could lead to further weakness for the pound.
GBP/USD Technical Analysis
As shown above, GBP/USD is potentially entering a distribution phase below the 1.2350 and 1.2400 areas on the daily chart. However, Sterling’s uptrend remains intact, while the 1.2150 and 1.1900 formations have yet to be broken:
As long as it is above 1.1900, it focuses on the rise of GBP/USD. A test move below 1.2150 could initiate a deep correction from the 1.20 area near 1.2070 with a 50% average reversion through the Fibonacci scale to 1.2120 and then a 61.8% ratio confluence with the upper quarter.