GBPUSD pair extends last week’s retracement decline from near 1.2200 and stays under selling pressure for the second consecutive day on Monday. The US Dollar is hovering above a one-month high, owing to expectations of additional Fed policy tightening, and is seen putting downward pressure on the major.
The safe-haven buck is supported by bets on the Fed tightening more and recession worries.
A number of key FOMC members, including Fed Chair Jerome Powell, emphasized the necessity for more interest rate increases to adequately contain inflation.
The predictions were bolstered by the Labor Department’s yearly adjustments to CPI data released on Friday, which revealed that monthly consumer prices climbed in December rather than decreasing as originally projected.
Furthermore, the previous two months’ data – October and November – were also included. Separately, one-year inflation predictions in the University of Michigan poll rose to 4.2% this month from 3.9% the previous month. This increases the likelihood of a higher January inflation reading and supports views that the Fed will maintain its hawkish posture, which continues to support the greenback.
Moving forward, no big market-moving economic data is due from the UK or the US on Monday. As a result, traders will be looking for indications from Fed Governor Michelle Bowman’s remarks later in the early North American session. On Tuesday, the emphasis will move to the UK monthly employment data and the US CPI report. Aside from that, this week’s economic calendar includes the UK CPI report, US Retail Sales data, and the US Producer Price Index (PPI) on Thursday. This, in turn, would assist investors in determining the next leg of the GBPUSD pair’s directional move.
Expectations that the Bank of England’s rate-hike cycle is approaching its conclusion also contribute to the drop.
The Bank of England (BoE), on the other hand, is likely to conclude its current rate-hiking cycle in the middle of this year, despite rising recession threats.
The speculation was reinforced by the UK GDP data, which revealed that the economy fell by 0.5% more than projected in December and stalled in the fourth quarter. This is perceived as weighing on the British Pound. Aside from that, the pervasive risk-off environment – as represented by a typically negative risk-off environment -A negative tone in equities markets supports the safe-haven USD while putting more pressure on the GBPUSD pair.
GBPUSD Technical Outlook
Technically, last week’s failure at the 50-day SMA and following fall favor bearish traders. This, together with the fact that oscillators on daily/hourly charts are still in the negative region, suggests that additional losses are likely.
As a result, some further deterioration towards the 1.2000 psychological level on the way to the one-month low, around the 1.1960 range recorded last week, appears to be a definite possibility. This is quickly followed by the crucial 200-day SMA, which, if strongly violated, will signal a new breakdown and pave the way for further losses.
On the other hand, the 1.2100 level appears to be acting as an immediate barrier ahead of the 1.1220-1.1225 range. A sustained rise over the latter might spark a short-covering surge towards the 1.2190 level. representing the 50-day SMA.
A decisive breach will neutralize the bearish picture and allow the GBP/USD pair to break through the 1.2235-1.2280 range, clearing the way for a return to the 1.2300 level.
