- GBP/USD attracts some intraday buying on Monday, but lacks follow-through.
- A modest dollar pullback from two-decade highs offers some support for the pair.
- The fundamental/technical backdrop still appears to be tilting in favor of the bearish traders.
The pair GBP/USD it has bounced slightly from its lowest level since March 2020, around the 1.1445 area touched earlier this Monday. The pair made a fresh daily high during the mid-European session, although they seemed to struggle to capitalize on the move or find acceptance above the key psychological 1.1500 level.
The US dollar trimmed some of its early gains to hit a new two-decade high and proved to be a key factor offering some support to the GBP/USD pair. However, expectations that the Federal Reserve will maintain its aggressive tightening policy act as a tailwind for the USD. Elsewhere, the gloomy outlook for the UK economy continues to undermine sterling and limit any significant gains for the British currency.
It should be remembered that the Bank of England warned last month that the British economy will enter a prolonged recession during the last quarter of the year. In addition, the British Chamber of Commerce (BCC) lowered its forecasts and now expects the British economy to register three consecutive quarters of contraction. This, to a large extent, casts a shadow over the prospects of further interest rate hikes by the British central bank.
On the UK political front, Liz Truss won the Conservative Party leadership race to become Britain’s next Prime Minister. The news, however, did not impress bullish traders, suggesting that the path of least resistance for GBP/USD is to the downside. However, relatively low trading volumes due to the US Labor Day holiday could prevent traders from placing aggressive bearish bets and limit losses.
However, the fundamental backdrop continues to support the prospects for an extension of the three-week downtrend. Even from a technical point of view, the acceptance below 1.1500 and the GBP/USD’s inability to attract any buyers suggest that the short-term selling trend is far from over. Therefore, any recovery attempt could be seen as a selling opportunity and risks quickly disappearing.
Technical levels
Source: Fx Street
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