GBP/USD recovers ground after hitting lows not seen since 1985

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  • GBP/USD will end the week with losses of more than 1.50%, pending the decisions of the Bank of England and the Federal Reserve.
  • The University of Michigan Consumer Sentiment improved from last month’s reading, while inflation expectations eased.
  • UK retail sales raised concerns about the country’s recession amid a change in government.

The GBP trimmed its earlier losses against the dollar, having hit a 37-year low around 1.1350, and rebounded back to the 1.1400 threshold after posting weaker-than-expected retail sales, fueling speculation that the UK would enter in recession At the time of this writing, GBP/USD is trading at 1.1395, down 0.62% from its opening price.

Risk aversion keeps most G8 currencies affected. The USD trimmed some earlier losses, as shown by the US Dollar Index, which trades sideways around 109.704, shedding 0.04%. US economic data released by the University of Michigan showed that US consumers remain slightly optimistic about the country’s economy. Consumer sentiment in September rose to 59.5, one point below estimates but better than the 58.6 reached in August.

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Joanne Hsu, director of the UoM survey, said: “Following the marked improvement in sentiment in August, consumers showed signs of uncertainty about the path of the economy.” In the same report, one-year inflation expectations fell to 4.6%, from 4.8% in August.

Meanwhile, US economic data released in September reinforces the case for a 75 basis point Federal Reserve rate hike in the coming week. In addition, sources quoted by Bloomberg commented that the US central bank could go higher in November.

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Separately, the UK docket revealed that retail sales in August slumped more than the estimated 0.5% contraction, falling 1.6% mom, raising recession fears amid a tightening cycle by the Bank of England.

Meanwhile, UK Prime Minister Liz Truss last week announced an energy bill that will cap energy prices for two years, likely to cost an estimated £100bn.

What must be considered

The UK economic docket will include the Bank of England’s monetary policy decision next week. Money market futures expect a 50 basis point rise, but pressures are mounting for the central bank to hike 75 basis points. In the US, the Federal Reserve is expected to raise rates by 75 basis points, with little chance of reaching one percentage point.

GBP/USD key technical levels

GBP/USD

Panorama
Last Price Today 1.1398
Today’s Daily Change -0.0068
Today’s Daily Change % -0.59
Today’s Daily Opening 1.1466
Trends
20 Daily SMA 1.1634
50 Daily SMA 1.1884
100 Daily SMA 1.2118
200 Daily SMA 1.2713
levels
Previous Daily High 1.1556
Previous Daily Minimum 1.1462
Previous Maximum Weekly 1.1648
Previous Weekly Minimum 1.1405
Monthly Prior Maximum 1.2294
Previous Monthly Minimum 1.1599
Daily Fibonacci 38.2% 1.1498
Daily Fibonacci 61.8% 1,152
Daily Pivot Point S1 1.1433
Daily Pivot Point S2 1.14
Daily Pivot Point S3 1.1338
Daily Pivot Point R1 1.1527
Daily Pivot Point R2 1.1589
Daily Pivot Point R3 1.1622

Source: Fx Street

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