- GBP/USD is posting its worst monthly losses since March 2020, shedding 5.43%.
- The US economy contracted 1.4% and fell short of the 1% expansion forecast by economists.
- GBP/USD Price Forecast: Remains under pressure unless bulls retake 1.2700
The GBP continues to fall, extending its April monthly drop to 5.43%, and approaches 1.2400 on Thursday amid an upbeat mood, despite some US and European indices posting losses. At time of writing, GBP/USD is trading at 1.2440
US economy contracts for first time in two years, confidence improves
Sentiment improved as the Covid-19 outbreak in China came under control while the conflict between Russia and Ukraine continued. Aside from this, first-quarter Gross Domestic Product showed a 1.4% contraction at an annualized pace, the first in nearly two years, though unlikely to dissuade the Fed from raising interest rates in its bid to do against inflation.
Talk of stagflation began once the report came out. However, ING analysts wrote that domestic demand held firm when considering the impact on the economy’s momentum caused by the Omicron variant last year.
They added that “consumer spending grew 2.7%, while non-residential investment expanded 9.2% and residential investment recorded a 2.1% gain.” They attributed the negative figure to the drop in exports and the surplus of imports.
Also on the US economic docket, the Labor Department released initial jobless claims for the week ending April 22, which increased by 180,000, below an estimate of 182,000.
Meanwhile, turning to geopolitics, the Russian Foreign Ministry said that Russia had not received a response from Ukraine on a possible agreement and also reported that Russia will hold an informal UN Security Council meeting on May 6 on the situation in Ukraine.
Due to market sentiment, GBP/USD should rise as GBP is considered a risk sensitive currency against the safe haven US dollar. However, the Fed’s pace of tightening looks more aggressive than the Bank of England’s, and given that both banks will have an interest rate decision next week, it would be wise to wait and see before placing further bets.
GBP/USD Price Forecast: Technical Outlook
GBP/USD has a bearish bias and looks ready to extend to lower price levels. The Relative Strength Index (RSI) is at 18.61, well into oversold territory, but its slope still points south, which means GBP/USD could continue to fall.
Technical levels
Source: Fx Street
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