GBP/USD Still Pressured Despite Signs of Less Hawkish Fed

GBP/USD rates, charts and analysis

• GBP/USD Again failed to hold on to gains
• The United Kingdom gained unity with others after the release of the Fed’s meeting minutes
• Technically, it is fairy It has fallen below the medium term trend line

The pound sterling joined several other currencies in gaining a bit from the US dollar on Thursday, as European and Asian investors pondered recent comments from the US Federal Reserve, however, in the case of the pound, those gains again proved short-lived.

Minutes from the May FOMC meeting released on Tuesday indicated that rate setters may now be inclined to wait and assess the impact of previous hikes in the cost of borrowing before unleashing more. It wasn’t a flat out rejection of a rate hike, but it was enough to see the dollar sway a bit, especially as investors eye more anxious than usual the turbulent negotiations on the federal debt ceiling as well.

Meanwhile, the British pound is still under a cloud as far as sentiment is concerned. The British currency has risen sharply since September 2022, on (well-founded) expectations that domestic prices will rise further. Now investors seem to be running out of reasons to buy, as the pound struggles to sustain any momentum even in the face of still-high inflation and clear expectations of a BoE rate hike.

While the UK economy appears to be better than expected, many of those forecasts were very bleak in the first place. It also struggles with some of the highest rates of inflation in Europe when necessities like food and fuel are factored in, and government borrowing has risen sharply.

Wednesday’s session brought news that US official growth figures for the first quarter of this year have been revised upwards. Annual growth is now estimated at 1.3%, still weak but better than the 1.1% initially reported. This was enough to see GBP/USD slip back into the red for the day.

The near-term focus will be on US inflation figures and UK official retail figures, both of which are due on Friday.

Technical analysis of the GBP/USD pair

Chart compiled using TradingView

The last two sessions have seen a sharp turnaround for the pound, and although the GBP/USD has been fine for the year, it has now crossed a trend line that previously existed, if rarely tested, on the daily chart since September 2022.

If the bulls can’t get the pound back above this in short order, ideally by the end of the week, it could be a long-term bearish signal for the pair.

However, for now, the cable seems to be drifting down towards the support at 1.23440. This is the second Fibonacci retracement of the rally from the lows of March 23rd to the intraday peak on May 10th, the highest level in 13 months.

While this support has already faded on a daily basis, the current bearish move has yet to see a daily close below, so keep an eye on the level during the US Thursday session. Bulls will need to reclaim this trend line resistance, now at 1.23878, then maybe first correction resistance at 1.24732 if they are going to offer a convincing reversal.

IG’s sentiment data indicates that this is completely unlikely. However, with the entire 77% down now on GBP/USD, a mixed bounce might be Sterling’s best hope in the near term.

– By David Cottle for DailyFX