- GBP/USD extended its three-week decline to March 2020 low of 1.1411.
- The US dollar index DXY hit a 20-year high near 110.00 on Fed’s expectations.
- The daily chart is focused on new leadership in the UK and Jerome Powell amid oversold RSI.
GBP/USD crumbled like a pack of cards until he reached Its lowest level since March 2020, 1.1500. below from, amid a volatile week that pushed the DXY US Dollar Index to a 20-year high as investors scrambled for a safe haven. next week will be interesting, like Britain to announce new prime ministerin the face of an inevitable recession.
Week Summary in GBP/USD
The markets witnessed volatility at the end of the week. Fears of recession and expectations of aggressive Fed rate hike dominated the week, The relentless US dollar strength with Treasury yields came as markets priced the Fed rate hike of 75 basis points for September at about a 60% chance compared to about 74% a week earlier. At the same time, ECB hawks reappeared and raised hopes of a rate hike next week up to about 80%. ECB policy makers join a chorus of their American counterparts after the Jackson Hole symposium, In a forceful response to reduce inflation, even if it means more pain for the economy, Initial eurozone inflation rose to a new record high of 9.1% in August.
The US currency remains a safe haven as investors remain concerned about prolonged rate hikes, Amidst rising risk of global recession, new close of stock market China, the energy crisis and concerns about the real estate market heightened the aversion to market risk. Lower-than-expected US private sector employment (ADP) data and a mixed US manufacturing PMI (ISM) failed to curb aggressive expectations of the Federal Fed. US private sector payrolls increased by just 132,000 in the month, down from 268,000 in July. For its part, the US manufacturing sector rose sharply to a value of 52.8 in August, although the paying component of prices fell sharply to 52.5.
With regard to the pound sterling, the grim economic outlook for the United Kingdom continued to put pressure on the national currency, given that Energy crisis and rising cost of living, Last Friday, the British energy regulator, Offgame, announced that Average annual energy bill for homes to rise by 80% from October, up to £3,549. Meanwhile, the UK is set to announce a new prime minister on Monday, with the current foreign minister, liz truss, as a favourite. Truss and Finance Minister, nadim zahavi, took the lead in providing immediate assistance to household energy bills. Although Sterling Bull was not impressed, further political support could only worsen the inflation picture and exacerbate the Bank of England dilemma.
The US Bureau of Labor Statistics reported on Friday that NFP non-farm payrolls increased by 315,000 in August, Although this figure was slightly above market expectations of 300,000, it did not help the dollar gain further strength. Investors lowered flamboyant expectations for the Fed as the report showed wage inflation was unchanged at 5.2%. According to CME Group’s FedWatch tool, the market has a 64% chance of a 75 basis point increase in the September rate, which has been rising over the weekend. In turn, GBP/USD moved towards 1.1600 and broke the five-day losing streak.
Next week: Things to keep in mind
The start of the week will be relatively calm as US traders will be absent on Monday for the Labor Day holiday. However, the speech of UK monetary policy officer Katherine Mann will be watched closely for further clues on the political outlook.
it will be published on tuesday US Services PMIPrices paid the sub-index returned to the spotlight because it could confirm peak inflation and weigh on sentiment around Fed rate hikes. On Wednesday, traders will be ready for Hearing of the Bank of England Monetary Policy ReportWith an eye on the governor’s testimony Andrew Bailey and his colleagues before the decision to raise rates on 15 September.
Thursday, ECB’s decision on interest rates and the speech of Federal Reserve Chairman Jerome Powell, the next issues to be looked at will be their impact on market sentiment and the valuation of the US dollar. Weekly US jobless claims will also entertain traders ahead of UK consumer inflation expectations and second level US economic data on Friday.
Meanwhile, inflation will continue to trend at risk amid global tightness amid fears of a recession and a data-poor week on the UK economic calendar.
GBP/USD Technical Perspective
Despite Friday’s bounce, the RSI indicator on the daily chart remains below 30, suggesting that GBP/USD has more room for downside before correcting its oversold conditions.
Get up, 1.1700 (psychological level, midpoint of the descending channel coming from March) appears as the first resistance 1.1850 (steady level, upper limit of the descending channel) and 1.1900 (20-day SMA).
On the other hand, if GBP/USD goes down 1.1500 and starts using that level as resistance, it can extend its decline towards 1.1410/1.1400 (March 2020 low, psychological level).
Sentiment around GBP/USD
forex forecast survey FXStreet This shows that half of the pundits polled expect the GBP/USD to remain bearish next week, but only two pundits see the pair trading below 1.1500. One month and one quarter views point to extreme bullish sentiment with median targets of 1.1864 and 1.1965 respectively.