The GBPUSD currency pair has encountered significant downward pressure amidst challenging economic conditions in the U.K. and the unwavering strength of the U.S. dollar.
The U.K. economy recently entered a technical recession with back-to-back quarters of GDP contraction, notably contracting by 0.3% in the final quarter of 2023. This contraction was more pronounced than the previous quarter, affecting all major sectors, including services, production, and construction.
Consequently, the GBPUSD pair faces continued downside risks, potentially marking a second consecutive month in negative territory. The U.S. dollar’s robustness has been further bolstered by strong economic indicators, such as a higher-than-expected inflation rate of 3.1%, prompting market movements that favoured the Greenback. Additionally, diminished expectations of a rate cut in May, indicated by a sharp decline in probability from 50% to 32%, have reinforced the Dollar’s position, leading to a decline in risky assets and exacerbating downside pressure on the GBPUSD pair.
Technical
The GBPUSD currency pair has exhibited a downtrend, evident from its position below the 100-day moving average.
A recent period of sideways consolidation within a rectangle pattern ended with a downside breakout, indicating a shift towards selling activity in the supply and demand balance. This breakdown led the pair to decline towards the 1.25183 level, where oversold RSI conditions emerged, prompting a rebound.
However, this rebound was short-lived as downside momentum reemerged from the 1.26884 level, establishing a resistance level as the pair resumed its decline. With the prevailing downside momentum, the pair could likely retest the 1.25183 support level. On the other hand, the lower boundary of the consolidation pattern, at 1.25936, may act as a point of interest to the upside if buying momentum strengthens.
Summary
The GBPUSD faces downward pressure amidst the U.K.’s recessionary woes and the U.S. dollar’s strength. With a clear downtrend and a recent downside breakout, the pair may retest the 1.25183 support level, while the 1.25936 level could offer upside potential if buying momentum increases.
Sources: Reuters, CNBC, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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