GBP/USD Rebounds Swiftly From Daily High Amid Modest U.S. Dollar Strength As U.K. & U.S. Markets Mark Bank
- GBP/USD witnesses renewed selling amid modest U.S. Dollar strength
- A combination of factors assisted the U.S. Dollar to rebound swiftly during the mid-hours of the European session
- Despite BoE being widely expected to pause its rate hikes, the latest inflation data has complicated the picture and might hold investors back from placing aggressive bearish bets
- U.K. and U.S. Markets remain closed today as investors Mark Bank And Memorial Holidays. The focus for the week remains on Friday's NFP data
The GBP/USD cross reversed an intraday rise from the vicinity of 1.23722/daily high and witnessed fresh selling during the mid-European session on Monday. As per press time, the shared currency is trading near the daily low/1.23342 level and looks set to stick to its bid tone heading into the North-American session.
A combination of factors assisted the U.S. Dollar to rebound swiftly during the mid-hours of the European session and moved back above $104.200s levels, acting as a headwind to the GBP/USD Pair. Increased market expectations that the Federal Reserve (Fed) will continue to raise interest rates remained supportive of rising treasury bond yields, which underpinned the greenback and helped cap further GBP/USD gains. The bets were further raised after a U.S. Bureau of Economic Analysis data report on Friday showed the U.S. core PCE price index had risen by 4.7% on a year-to-year basis and 4.6% on a month-on-month basis against market expectations of 4.6% and 4.2%, respectively.
Apart from this, news that the two parties in the Debt Ceiling negotiations had reached a final agreement on Sunday on a deal to raise the nation's debt ceiling was also seen as another factor contributing to the sentiment surrounding the GBP/USD pair. Further supporting the greenback was the latest Michigan consumer sentiment data, revised to 59.2 in May from an initial estimate of 57.7. The recent positive U.S. macro data days after the Fed's May meeting minutes showed that the Fed's policy makers had expressed reluctance to raise interest rates beyond the current level during their May meeting. This hesitation stemmed from mounting pressures on the banking industry and the emergence of economic challenges. However, the Fed did not intend to decrease rates, as inflation levels were still excessively high.
Shifting to the U.K. docket, the Bank of England has widely been expected to pause rate hikes and look at when to pivot; however, recent data has complicated the picture and further added pressure to Governor Andrew Bailey on his next interest rate hike move. The consumer price inflation (CPI) rate in the U.K. fell to 8.7% year-on-year in April 2023, the lowest since March 2022, due to a sharp slowdown in electricity and gas prices, but still exceeded market expectations of an 8.2% rise and remained well above the Bank of England's target of 2.0%, a U.K.Office of National Statistics data report last week on Wednesday showed. The core rate, which excludes food and energy, jumped to 6.8%, the highest since March 1992 and above well forecasts of 6.2%.
This, in turn, might hold investors back from placing aggressive bearish bets and encourage them to wait for near-term appreciating moves before placing fresh bearish bets. This week's incoming data is expected to show low U.S. consumer confidence, a weak manufacturing PMI reading, and a high U.S. unemployment rate, followed by fewer jobs created in the U.S. economy last month.
As we advance, in the absence of any economic news data from both dockets as both the U.K. and the U.S. are celebrating Bank and Memorial holidays, respectively, the general market risk sentiment and treasury bond yields will continue to influence the U.S. dollar sentiment and provide short-term trading opportunities around the GBP/USD pair. The main focus, however, remains on the U.S. NFP data report scheduled for release on Friday during the mid-north American session and is expected to show a drop in the number of people employed in May and land to 180K, down from 253K in April. The report would influence the near-term USD price dynamics. This, in turn, should assist traders in determining the next leg of a directional move for the USD/CNH pair.
Technical Outlook: Four-Hours GBP/USD Price Chart
From a technical standstill, a further increase in selling momentum would cause the shared currency to drop towards the key demand zone ranging from 1.23090 - 1.22977 levels. Sustained weakness below this zone will reaffirm the negative bias and pave the way for additional losses. The shared currency could then accelerate the downfall toward retesting the key support level plotted by a descending trendline extending from the mid-May 2023 swing low. If sellers manage to breach this floor, downside pressure could pick up the pace, paving the way for a move toward the 1.22767 support level and, in dire cases, confronting the 1.21923 support level.
On the other hand, if buyers resurface and spark a bullish turnaround, initial resistance comes in at the 20-day (blue) Exponential Moving Average (EMA) at the 1.23602 level. On further northwards, the price will encounter resistance at the 1.23900 resistance level. A decisive flip of this resistance level into a support level could pave the way for an ascent toward tagging the 50-day (red) and 200-day (yellow) Exponential Moving Averages (EMA) at 1.24019 and 1.24368 levels, respectively. A breach above these levels, especially the technically strong 200 EMA level, could negate any-near bearish outlook and could further catapult GBP/USD above the 1.24530 confluence level as a result of the 50 and 200 days crossover (Golden Cross), marking its entrance into the late 1.24500s level before tagging the 1.25000 psychological mark.
