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We don’t see any major moves in sterling against the dollar until September.
The free collapse of the GBP/USD currency pair continues, and its losses reached the 1.1742 lowest support level for the currency pair in nearly 30 months. It is settling around the 1.1765 level at the time of writing the analysis. Despite the crash, it still has a chance of more downward pressure, especially if the busy US economic calendar or comments from Federal Reserve (Fed) officials allow US bond yields and the dollar to add to the gains.
The British pound was not helped by better-than-expected UK economic data and a sharp increase in market expectations for interest rates at the Bank of England (BoE) last week, often appearing to be the most vulnerable among the major currencies to a rebound in US bond yields and the US dollar. This was after a chorus of votes from the Federal Reserve’s rate-setting committee reminded the market in public comments that there was still a risk that the bank would opt for a straight 0.75% increase in US interest rates next month, stimulating US bond yields and the dollar.
With UK economic numbers ignoring and sterling losses mounting despite increases in UK bond yields that might normally have been supportive of the currency, this week’s S&P Global Purchasing Managers’ Index surveys may now be less important than risks emerging from the busy US economic calendar. Rising US bond yields and a stronger dollar dented risk appetite in the market on Friday and seemed to exacerbate losses for GBP/USD, which came close to revising multi-year lows under 1.18 support ahead of the weekend.
Joseph Caporso, an analyst at the Commonwealth Bank of Australia, said: “FOMC Chairman Powell is due to speak on Friday (midnight Sydney time). His speech was the first since the Federal Open Market Committee’s policy meeting in late July. We expect Powell to deliver an upbeat message on inflation in line with recent comments from FOMC officials. There is room for market pricing to raise the money rate, and to support the US dollar.”
Focus on Jackson Hole Symposium
The highlight of this week is Fed Chairman Jerome Powell’s speech at Jackson Hole’s annual symposium next Friday due to its potential to influence market expectations of US interest rates in September and beyond. However, before then, a number of US economic figures are due, and each will help determine market appetite for the dollar in the coming days.
This includes the second estimate of US GDP for the fourth quarter and the July reading of the Fed’s preferred measure of US inflation, the core PCE price index, which markets will be scrutinizing closely for anything to support signs of the mild inflation pressure recently noted in official actions. With financial markets recently expected to cut the September rate hike to 0.50% for the Federal Reserve, GBP/USD will be at risk this week from anything that pushes market rates back in favor of a larger 0.75% increase.
Anything could lead the market to abandon recent bets that the Federal Reserve may rush to cut US interest rates next year. At the same time, Flash PMI releases will provide a glimpse into how the UK economy is holding up. While sterling short positions have been cleared this week, we don’t see any major moves in sterling against the dollar until September.
Sterling dollar forecast:
- The recent losses of the GBP/USD currency pair pushed the technical indicators towards oversold levels.
- Forex traders will be in a cautious position to buy the currency pair as the strength of the US dollar continues.
- Currently, the closest support levels for the currency pair are 1.1720, 1.1650 and 1.1580, respectively, and from the last two levels, you can consider buying the currency pair with no risk.
On the other hand, breaking the resistance 1.2100 will be important to form an opposite channel for the current sharp bearish situation. The sterling will be affected by the announcement of the PMI readings for the manufacturing and services sectors in Britain.
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