In the world of currency markets, the British Pound Sterling (GBP/USD) is currently weathering a storm of intense selling pressure, despite some softer-than-expected data out of the United States. The core Personal Consumption Expenditure (PCE) price index for August painted a surprising picture, with monthly expansion registering at a modest 0.1%, a drop from the anticipated and prior figure of 0.2%. Meanwhile, the annualized PCE rate eased to the expected 3.9% from its previous reading of 4.3%. The headline PCE grew by 0.4%, although it fell slightly short of expectations of 0.5%, in part due to surging energy prices.
In a twist of market sentiment, the GBP/USD pair had previously seen a surge in buying interest as investors contemplated the looming threat of a recession in the United Kingdom. This positive shift occurred as market participants grudgingly acknowledged that the British economy might have no choice but to grapple with higher interest rates from the Bank of England (BoE) to combat its overheated inflationary environment. The Pound Sterling’s strength was further buoyed by a corrective pullback in the US Dollar, contributing to the cable’s notable rebound.
Technical Outlook on the British Pound Sterling (GBP/USD)
The Pound Sterling has been experiencing a decline against the US Dollar since it reached its peak at $1.31420 in the first half of July. Subsequently, the market has exhibited a gradual descent. Around the $1.25703 level, the bearish momentum faced some resistance as bullish attempts to reverse the trend briefly materialized. However, this resistance was short-lived as the bearish trend regained momentum, approaching the critical support level at $1.20000. At this juncture, the Pound Sterling market appeared undervalued relative to its historical norms, prompting a reversal at $1.21264, where solid support was established.
This newfound support level has propelled the market closer to the 30 mark on the Relative Strength Index (RSI). Nevertheless, the recent candlestick pattern on the chart, specifically an inverted hammer, suggests the potential formation of a resistance barrier, signaling caution for the ongoing bullish momentum.
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