The Future of the GBP/USD Amid Weak Data and Deteriorating Sentiment
Today's market analysis on behalf of Rania Gule Market Analyst at XS.com
October 26, 2023 (Investorideas.com Newswire) The GBP/USD pair extended its losses for two consecutive days after reaching its highest level in two weeks at 1.2288 but failed to break the key resistance level at 1.2300. Fundamental news and geopolitical risks have affected the strength of the British pound, and the pair is currently trading at 1.2082, down by 0.35% during Thursday's trading.
I believe that risk aversion continues to push financial markets lower against the dollar, as news agencies revealed that Prime Minister Benjamin Netanyahu is preparing his army for a ground assault and advised civilians in Gaza to head south. He added that he wouldn't disclose details and that the timing of the invasion would be reached by consensus, but I don't believe this will happen soon.
This coincided with the continued display of economic data in the United States, showing economic resilience and strength. The U.S. Bureau of Economic Analysis announced that new home sales were higher than August figures, with September sales rising by 12.3%, compared to the previous decline of -8.2%. The GBP/USD pair remains in a state of decline after the agency mentioned that the Manufacturing Purchasing Managers' Index (PMI) is still in recession territory, while employment data indicates a labor market decline. This has increased expectations that the Bank of England (BoE) will keep interest rates unchanged at 5.25% at its meeting on November 2, despite the Federal Reserve tightening its monetary policy.
In my opinion, the GBP/USD pair may extend its losses towards the 1.20203 level, as the U.S. economic calendar includes the third-quarter Gross Domestic Product (GDP) durable goods orders and jobless claims. If the U.S. GDP comes in higher than expected, it could lead to further declines in the GBP/USD pair due to the strength of the dollar.
The British pound has also weakened against the dollar in the past few hours after wage numbers in the UK increased slower than expected, and the job market improved slightly. Wages in the UK rose, although still high, at a slower pace than expected in August, which increased market expectations that the Bank of England may raise interest rates for the last time. The unemployment rate also increased slightly from 4.3% to 4.2%, but the data showed a significant decline in the labor market, which is usually a sign that tight monetary policy is working through the real economy and affecting price pressures.
As markets eagerly await the release of significant U.S. data, observers expect further declines in the pair due to the lack of factors supporting the strength of the British pound. Recent U.S. data has shown surprising positive figures, so another surprise today or tomorrow could boost the strength of the dollar and weaken the pound.
I believe that sentiment towards the UK economy and the Bank of England's monetary policy will keep the GBP/USD pair in a generally bearish trend, and the only hope for a recovery will be tied to weaker-than-expected U.S. economic indicators and weak inflation figures in the coming hours, which may alleviate some losses in the short term and guide the pair to a modest upward correction.
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