- The US Dollar is set to finish the week with solid gains due to Fed’s hawkish comments and US data.
- US Consumer Sentiment improved, as reported by the University of Michigan.
- The UK avoided a recession in Q4 2022, though its forward economic outlook suggests a weaker British Pound.
- GBP/USD Price Analysis: A daily close below 1.2032 would resume a bearish continuation.
GBP/USD snaps three straight days of gains and drops as it tested the 50-day Exponential Moving Average (EMA) at 1.2126, as UK economic data showed the economy did not grow, while consumer sentiment in the US improved. At the time of writing, the GBP/USD exchanges hands at 1.2055.
Improvement in US consumer sentiment and weak UK GDP weighed on the GBP
The GBP/USD extended a leg down after data from the University of Michigan (UoM) reported that Consumer Sentiment surpassed predictions of 65 and increased to 66.4, indicating a better financial situation. In addition, the expected inflation rate for the year rose from 3.9% in January’s final reading to 4.2%, while the inflation estimations for a five-year period remained steady at 2.9%.
Therefore, the US Dollar Index (DXY), a measure of the greenback’s value vs. a basket of peers, advances 0.60%, up at 103.65, underpinned by US Treasury bond yields, which, affected by hawkish Federal Reserve’s (Fed) speakers commentary during the last week, broke the 3.70% threshold, at 3.728%.
During the European session, the UK economic docket revealed that GDP for the last three months of 2022 stood at 0% and avoided entering a recession, foresaw by the Bank of England (BoE). On a monthly basis, December’s GDP contracted by -0.5%, reported the Office for National Statistics (ONS).
In the meantime, a gloomy scenario in the UK suggests that the British Pound (GBP) would be under pressure as the BoE struggles to tame inflation which reached a 41-year high at 11.1% in October of 2022. The BoE’s latest monetary policy meeting revealed a split vote amongst its members. The BoE forward discussions and guidance would be interesting, which could reassure the central bank’s commitment to tackle inflation.
GBP/USD technical analysis
From a daily chart perspective, the GBP/USD would consolidate within the boundaries of the 50-day EMA at 1.2126 upwards and the 100-day EMA at 1.2032 downwards. However, the Relative Strength Index (RSI) entered the bearish territory, and the Rate of Change (RoC) turned neutral, making a case for a bearish continuation. Therefore, the GBP/USD next support would be the 100-day EMA at 1.2032, followed by the psychological 1.2000 figure. A decisive break could send the GBP/USD to test the YTD low of 1.1841.
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