In Tuesday’s European morning session, the Pound Sterling (GBP) experienced a sharp decline following the release of the United Kingdom Office for National Statistics (ONS) report, revealing a notable slowdown in Average Earnings data for the three months ending November. Despite a steady labor market during this period, the vulnerable economic conditions in both domestic and overseas markets contributed to the unexpected deceleration in wage growth. Analysts anticipate that this softer-than-projected performance will strengthen investor expectations of early rate cuts from the Bank of England (BoE).
The UK economy faces exposure to a technical recession, as the ONS reported a contraction in the third quarter of 2023. The BoE’s confidence in growth for the final quarter of 2023 is also waning due to increased interest rates and a deepening cost-of-living crisis. A more subdued inflation outlook, coupled with concerns about further economic challenges, may prompt BoE policymakers to reconsider their current tight interest rate stance.
The GBP/USD pair has undergone a significant correction, influenced by the escalating crisis in the Middle East region, which has heightened demand for safe-haven assets. Simultaneously, the US Dollar Index (DXY) reached a weekly high ahead of the release of US Retail Sales data, providing insights into the potential timing of the Federal Reserve’s (Fed) planned rate-cut cycle.
Technical Analysis: Pound Sterling Targets 1.2600 Amidst Chart Pattern Breakdown
Technical analysis indicates a substantial decline in the Pound Sterling as it broke down from a rising channel chart pattern on an hourly timeframe. The near-term outlook has dimmed further with the Cable slipping below the 200-period Exponential Moving Average (EMA). Anticipated intermediate support lies around 1.2612, the low recorded on December 13.
The 14-period Relative Strength Index (RSI) has shifted into the 20.00-40.00 range, signaling the initiation of bearish momentum.
The broader appeal for the GBP/USD has been significantly affected, with the pair dropping below the 20-day EMA, situated around 1.2700.
