Near Break of Important Support

In general, the economic data puts the market on alert for further US interest rate hikes by the Federal Reserve, an expectation reflected in rising US bond yields. 

• The GBPUSD exchange rate is approaching the psychologically important 1.20 level, but the next notable source of support can be found at 1.19 levels according to analysts’ pessimistic outlook towards the currency pair.
• The losses of the British pound/dollar since the start of trading this week extended to the support level of 1.2052, its lowest in seven months.
• In general, the pound sterling, the euro, and the majority of the G10 currencies returned to pressure against the US dollar, which benefited from the new deterioration in investor sentiment amid the rise in US and global bond yields.

Commenting on the performance of the currency pair, Carol Kong, an expert at the Commonwealth Bank said that the  “GBP/USD is trading near 1.2050.”

“GBP/USD could continue its downward trend this week if the US dollar consolidates as we expect,” he added.

In general, the price of the US dollar jumped at the beginning of the new week and quarter thanks to some US data, which came stronger than expected, the renewed rise in US bonds, and the comments of the Federal Reserve Governor, which reminded the markets that raising interest rates again is on the table before the end of the year. A busy week of data began in the US with the US ISM Manufacturing PMI reaching a reading of 49.0 in September, a figure that exceeded the 47.7 level the market had expected and suggested some improvement in this sector of the economy. According to economists, there are areas of very positive news, as details show that production has already crossed the 50 level to reach 52.5, the best reading since July 2022, while employment also registered positive growth with an index level of 51.2 – the highest reading since May.

In general, the economic data puts the market on alert for further US interest rate hikes by the Federal Reserve, an expectation reflected in rising US bond yields. Long-term bond yields began the month rising and retreated from the losses incurred in the previous week, supporting the US dollar. In the same vein, last week witnessed a rise in long-term bond yields, pushing the dollar to new high levels before this movement retreated before the end of the month.

On another level, it supports the US dollar. Federal Reserve Governor Michelle Bowman boosted expectations for higher US interest rates on Monday as she said she remains willing to support another US interest rate increase for the central bank at a future meeting if incoming data shows that progress in inflation is stalling or going too slowly.

“I remain willing to support a hike in the federal funds rate at a future meeting if incoming data suggest that progress in inflation has stalled or is too slow for inflation to reach 2% in time,” Bowman said.

At the same time, she added, the rise in oil prices is expected to keep inflation rates uncomfortably high, noting that the latest measure published on Friday of the Federal Reserve’s preferred measure of US inflation – the personal consumption expenditures (PCE) price index for August showed that overall inflation rose partly Due to high oil prices.

In this regard, Bowman said: “I see a continuing risk that rising energy prices will reverse some of the progress we have seen in inflation in recent months.”

Markets have sold off bonds – sending yields and the dollar higher – since the Federal Reserve issued guidance on September 20 showing that US interest rates will remain at high levels for an extended period.

Overall, as GBP/USD approaches the psychological support level of 1.20, questions will be asked about whether this will provide any relief to the pound. The positivity of the US jobs numbers may support the next stronger downward move towards support at 1.0915 and 1.0840, respectively, according to the performance on the daily chart below. On the other hand, over the same period of time, a first break will not occur without moving above the resistance 1.2330. Today, the sterling dollar will be affected by the announcement of the reading of the British Services Purchasing Managers’ Index, then the announcement of the number of American non-farm jobs from the ADP survey, then the reading of the ISM Purchasing Managers’ Index for American services.

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