During the last week’s trading, the most prominent decline in the Forex market was the collapse of the GBP/USD pair towards the 1.1975 support level, penetrating the 1.2000 psychological support. This indicated the possibility of moving towards it a lot, especially when the GBP/USD approached the 1.2175 support. With the beginning of this week’s trading, the GBP/USD pair tried to maintain its gains around 1.2165, but the pressures on the sterling pound are still strong and continuous, and the currency pair settled around the 1.2100 support level, waiting for any new developments.
The British Pound overcame a reversal of a bullish dollar since the beginning last week and had slipped below the 1.20 level on Friday before the greenback suffered a setback from the June ISM manufacturing PMI reading. Commenting on this, Chris Weston, chief market analyst at Pepperstone.” Friday’s US ISM manufacturing report showed a significant deterioration in new orders and sub-components of employment (both moved into contraction) and while inventories rose to 56.0, the sentiment is not a sign of easing supply chains (Positive in stocks), but a sign that demand is declining.”
“The potential for a technical recession is now very high, and although the labor market is in poor health, not many will feel long-term economic pain,” he added. That may, unfortunately, come too far during the year and the fact that we have cuts of 77 basis points in US rates for 2023 indicates that the market sees this as an increasing possibility.
The US dollar did not benefit from Friday’s downside surprise in the ISM manufacturing survey or the core PCE price index, the Fed’s preferred inflation measure, which paused for June on Thursday and dragged the annual rate down from 4.9% to 4.7% on the way.
Also, the British Pound extended its losses and only accumulated gains on the Dollar among the major data releases, while many analysts attributed this to growing market concerns about the outlook for US and global economic growth. So says Paul Robson, currency analyst at Natwest Markets, “The only economy where growth forecasts have actually been revised down significantly is the UK. Bank of England Governor Bailey sounded very cautious about the economy in Sintra, noting that the UK was at a tipping point and may be weakening faster than other countries.
“It appears to be a widely held view in the market already, so there is less room for such comments to alter sentiment toward the currency,” the analyst added. The GBP/USD continues to trade weakly, against our expectations, although this week the story has been more stronger than the US Dollar It’s more of an independent weakness story. With the USD outlook more balanced, we hold the view that GBP/USD forms a base around 1.20.”
It may also be relevant this week, however, as Friday’s rally was accompanied by continuous joint movements between GBP/USD and GBP/CAD during the hours before and after the London close, indicating the emergence of a bid Great sterling in Asia. Where this persists for more than a moment in GBP/CNH, it likely reflects oversight of the floating renminbi-sterling exchange rate by the People’s Bank of China (PBoC); Something that the sterling bears might overlook at their own risk. But it is also likely that much will now depend on whether the dollar continues its decline on Friday from long-term highs against many currencies, which in turn will likely depend on the market’s response to a host of events in the US calendar for the coming days.
Bearish penetration of the price of the GBP/USD currency pair to the support level 1.2175 still supports the move towards psychological support 1.2000 and much less than that. The US dollar is still stronger with expectations of raising US interest rates throughout 2022 and the pound, despite the expectations of raising interest rates from the Bank of England, but it faces pressure factors from British political anxiety and fears of a grinding economic recession. On the other hand, to cause a breach of the current trend, the bulls will have to rush towards the resistance level 1.2465, according to the performance on the daily chart below. The British pound will interact today with the announcement of the British Services PMI reading and the statements of the Governor of the Bank of England.