GBP/USD breaks above the 1.1000 level on the back of USD weakness

• GBP/USD reached a daily high at 1.1074.
• Initial US jobless claims fell, cementing the possibility of further Fed rate hikes.
• GBP/USD Technical Analysis: Test of 50% Fibonacci level, once passed, could see recovery to 1.1210; otherwise it could retest 1.0538.

The GBP/USD advances for the third day in a row as the global stock sell-off continues. However, on the currency side, a slight improvement in sentiment keeps most G8 currencies higher against the dollar, despite upbeat US economic data.

At the time of this writing, the GBP/USD pair is trading at 1.1024, up 1% from its opening price, having hit a daily low of 1.0759.

GBP/USD recovers after mixed US economic data.

In the American session, US economic data was mixed, with GDP for the second quarter at -0.6%, according to street analysts’ estimates. Notably, the government revised GDP data from the fourth quarter of 2016 to the fourth quarter of 2021, which showed that the economy’s recovery from the Covid-19 pandemic was stronger than initially reported.

At the same time, the US Department of Labor reported initial jobless claims for the week ending September 24, down 193,000 from 215,000, showing the resilience of the labor market, despite headwinds spurred by the Fed’s tightening stance.

Meanwhile, Fed officials are sticking to their hard-line rhetoric. Cleveland Fed President Loretta Mester said she doesn’t see distress in US financial markets when asked about what’s happening in the UK. She acknowledged that the actions of the Bank of England promised to stabilize the bond market.

Apart from that, Mester added that he continues to see inflation as the economy’s main problem and said he sees no reason to slow down. Furthermore, he expects rates to peak at around 4.6%.

For his part, St. Louis Fed President James Bullard said the Fed would have to keep rates “higher for longer” and added that real rates in positive territory are an “encouraging sign”; however, he acknowledged elevated recession risks, while adding that the 4.5% unemployment rate “would still be healthy for the economy.”

In the background, the US Federal Reserve raised rates in September by 75 basis points, to 3.25%. The chances for the November meeting stand at 70% that there will be another increase of the same amount, taking interest rates to the threshold of 4%.

Earlier, UK Prime Minister Liz Truss said she was ready to make “controversial” decisions, doubling down on her economic plan, laid out by her finance minister Kwasi Kwarteng.

GBP/USD Price Analysis: Technical Outlook

Over the past three days, GBP/USD has made up some ground against the dollar, although today’s rally is testing 1.1047, the 50% Fibonacci retracement level, traced from the last swing high at 1.1738, towards the lower low, which is the low of the year at 1.0356. Therefore, if the pair breaks above, the next resistance level to test would be the Fibonacci 61.8% at 1.1210. On the other hand, if it fails to break above it, then a drop to 1.0884, the 38.2% Fibonacci, is likely, followed by the 28 Sep low at 1.0538.