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- At the end of last week’s trading, the price of the GBP/USD currency pair fell towards the support level of 1.2547.
- This is the lowest it has been in more than two months.
- The strength of the US dollar is due to expectations of a rise in the US interest rate.
- The Jackson Hole conference confirmed this path, and for the second day in a row, the price of sterling/ GBP/USD is around the 1.2600 level and is stable around it at the time of writing the analysis.
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In general, the exchange rate of the pound against the US dollar (GBP/USD) fell by more than 1.25% following the purchasing managers’ index (PMI) data in the United Kingdom, which came in weaker than expected and the risks of recession increased. Accordingly, the exchange rate of the pound sterling weakened due to the decline in economic sentiment.
The pound started trading this week slowly amid the lack of economic data and mixed market sentiment. However, maintaining support for the pound sterling was due to the Bank of England’s high interest rate hike bets. The pressure came back to weigh on the sterling as factory production slowed down again as shown in the latest Balance of British Industry (CBI) demand book.
The strongest losses for the pound sterling in the markets came as the Purchasing Managers’ Index surprised the downward trend. Britain’s main services sector slipped into contraction territory for the first time since January, as rising borrowing costs and high inflationary pressures continue to weigh on the UK economy. The contraction in business activity across Britain has fueled investor fears and heightened fears of a recession.
It seems that the renewed contraction of the British economy is indeed inevitable, as the increasingly sharp decline in the manufacturing sector is accompanied by a further faltering of the recovery of the service sector in the spring. The survey indicates a 0.2% decrease in GDP during the third quarter so far. By the end of last week, the pound sterling continued its decline as the latest retail trade data revealed that the sector fell at its fastest pace in more than two years.
As I mentioned before, the general trend of the GBP/USD currency pair will remain downward. The stability below the 1.2600 support level will strengthen the bears’ control over the direction of the currency pair. It will also foretell a stronger downward movement and the next strongest downward levels will be 1.2550 and 1.2480 respectively.
It is best to think about buying the currency pair with no risk. There may be a rebound to the top and strongly if the American job numbers came in lower than all expectations and negatively affect the course of the American interest rate hike.
There will not be an upward shift in the direction of the currency pair without returning to the vicinity of the psychological resistance level of 1.3000 again. The currency pair will be affected today by the announcement of the reading of American consumer confidence and American job opportunities. The expected modest slowdown in employment could weigh on the US dollar, as it could signal that the labor market is finally starting to calm down.
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