- GBP/USD fails to take advantage of the previous day’s bounce from the lowest level since 1985.
- The gloomy economic outlook for the UK is acting as a headwind for the British pound.
- The weak price action of the dollar neither impresses the bulls nor lends them any support.
The pair GBP/USD it is struggling to take advantage of the previous day’s bounce from the 1.1400 area, the lowest level since 1985, and is range bound on Thursday. The pair is trading around the 1.1500 level at the start of the European session and seems vulnerable to prolonging the nearly month-long bearish move.
The proposed £30bn tax cuts and capping energy bills of households by the new British Prime Minister, Liz Truss, adds to UK debt market concerns. Furthermore, Bank of England policy makers, who testified before Parliament’s Treasury Committee on Wednesday, they did not strengthen bets for a more aggressive rate hike. This is seen as a key factor that continues to weigh on the British pound and acts as a headwind for the GBP/USD pair.
The US dollar, meanwhile, is seen consolidating the previous day’s sharp decline from a two-decade high. Signs of stability in financial markets seem to weigh on the safe-haven dollar, although they do not impress the bulls nor give a significant boost to the GBP/USD pair. Also, expectations that the Fed will continue to tighten its monetary policy to curb inflation lend some support to the dollar.
The fundamental factors mentioned, along with the worsening outlook for the UK economy, suggest that the path of least resistance for GBP/USD is to the downside. Therefore, any rally attempt could be seen as a selling opportunity and risks fading quickly. Market participants now await Fed Chairman Jerome Powell’s speech, which could weigh on the dollar later in the American session.
Traders will continue to watch the expected decision of the European Central Bank to see some cross movements around the pound sterling. Meanwhile, the GBP/USD pair is likely to continue its subdued, range-bound price action amid the absence of market-relevant economic releases.
GBP/USD technical levels
Source: Fx Street
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