The Pound Sterling Corrects from 30-Month Highs Against the US Dollar
The Pound Sterling (GBP) closed the week on a downward trend against the US Dollar (USD), extending its correction from 30-month highs below 1.3100. Will US inflation data revive GBP/USD buyers next week? Technically, the path of least resistance appears down for the Pound Sterling.
Pound Sterling Yields into the US Dollar Resurgence
- GBP/USD faced a double whammy, with the resurgence of the demand for the US Dollar and the Pound Sterling being affected by the Bank of England’s dovish policy expectations and the risk-averse market environment.
- Strong US economic data, including JOLTS Job Openings, ADP Employment Change, and ISM Services PMI, fueled a sustained recovery in the US Dollar against major rivals.
- The Greenback also drew haven demand from mounting risks of the Israel-Iran conflict turning into a wider regional war in the Middle East.
- BoE Governor Andrew Bailey’s dovish commentary exacerbated the Pound Sterling’s pain, leading to a drop in the GBP/USD pair to the lowest level in three weeks.
Watch Out for the US Consumer Inflation Data
- The upcoming week will see a focus on the Minutes of the Fed’s September meeting, a flurry of speeches from Fed policymakers, and the highly influential US Consumer Price Index (CPI) data.
- On Thursday, the US calendar will feature the Producer Price Index (PPI) and preliminary Michigan Consumer Sentiment and Inflation Expectations data.
- Geopolitical developments in the Middle East, particularly tensions between Israel and Iran, will remain on traders’ radars throughout the week.
GBP/USD: Technical Outlook
- The GBP/USD pair has breached critical support levels on its corrective decline from over two-and-a-half-year highs, signaling a downside risk.
- The 14-day Relative Strength Index (RSI) holds below the 50 level, indicating a bearish bias for GBP/USD.
- Immediate support is at the 50-day SMA at 1.3076, with further downside targets at the 100-day SMA and the key 200-day SMA.
- Recovery attempts will face resistance at the 21-day SMA and the previous falling trendline support turned resistance.
Overall, the Pound Sterling’s correction from 30-month highs against the US Dollar reflects a shift in market sentiment driven by strong US economic data, dovish BoE commentary, and geopolitical tensions in the Middle East. Traders should watch out for US inflation data and Fed speeches in the upcoming week, along with technical indicators pointing to a downside risk for GBP/USD.