- GBP/USD posts modest losses of 0.23% on Wednesday, paring some of Tuesday’s gains.
- Market participants are “focused” on the US Fed’s Jerome Powell’s speech on Friday.
- Pending US home sales show the housing market deteriorating, while durable goods orders held up.
GBP erases Tuesday’s gains and falls, towards the 1.1800 level, amid a slightly bullish environment, with traders being cautious ahead of the Jackson Hole Symposium, with market participants’ eyes ‘focused’ on Mr. Fed chief Jerome Powell. At the time of writing this article, the pair GBP/USD it trades at 1.1803.
On Wednesday, GBP/USD opened near daily highs around 1.1830, but fell to daily lows at 1.1755 an hour before the Wall Street open on US economic data. The lack of economic releases from the UK will keep GBP/USD traders adrift on the US dollar dynamic.
Meanwhile, the US dollar index resumed its upward trajectory, albeit slightly higher by 0.03%, to 108.523, while US Treasury yields rose. US economic data released over the past two weeks has been mixed, albeit in tune with an ongoing slowdown in the US economy.
Prior to the Wall Street open, US pending home sales fell to their lowest levels since the Covid-19 pandemic began. In its annual reading, it plummeted -19.9%, less than -22% drop, while in the month-on-month, it fell -1%, compared to the -4% expected.
Previously, July Durable Goods Orders were unchanged at 0% MoM, disappointing estimates, but June’s reading was revised higher to 2.2%, showing consumer resilience. Orders excluding Defense and Transportation rose 0.4%, above estimates of 0.3%.
Despite the US data being dollar positive, the GBP/USD pair regained some ground, rising towards the 1.1817 area, current trading levels, as by 14:00 GMT, the British pound was trading lower from 1.1800.
Separately, late Tuesday, Minnesota Fed President Neil Kashkari crossed wires. Kashkari said that inflation is very high and it is the Fed’s job to curb it. He stressed the need to tighten monetary policy and added that they (the Fed) could only relax rate hikes when they see convincing evidence that inflation is headed for 2%.
As for the UK, with the country hitting record energy prices and double-digit inflation levels, the British pound is likely to remain under downward pressure. Also, with elections due on September 5, uncertainty over a new Prime Minister is keeping market participants on edge. Therefore, further weakness in the pound sterling is expected, despite further rate hikes by the Bank of England.
Meanwhile, analysts at JP Morgan expect the pound to hit 1.14 “if gas prices continue to do what they’re doing,” as Sam Zief, head of global currency strategy at JP Morgan, put it.
What to watch out for
The UK economic docket will include the CBI Distributive Trades on Thursday. In the United States, the calendar will reveal the second-quarter GDP growth rate, initial jobless claims and the Kansas Fed manufacturing index for August.
GBP/USD Price Analysis: Technical Outlook
GBP/USD is trading below the midline of a descending channel traced from the end of May, while the 20 DMA crossed below the 50 DMA, indicating that sellers are gaining momentum. It is worth noting that if GBP/USD records a daily close below the July 14 cycle low at 1.1759, it could open the door for a test of the year’s low at 1.1716. Otherwise, it would open the door for a consolidation in the 1.1760 zone, before the next Bank of England monetary policy decision.
Technical levels
Source: Fx Street
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