During Friday’s Asian session, the GBP/USD pair showed range-bound movement, consolidating losses incurred following the Bank of England‘s (BoE) recent statements, which pushed it to a one-month low. Currently trading just above the mid-1.2600s, the pair appears susceptible to extending its retracement from last week’s multi-month high near 1.2860.
BoE’s Impact on GBP:
The decline in GBP was sparked by market reactions to BoE Governor Andrew Bailey’s remarks on Thursday. Bailey’s comment that inflation reaching the 2% target was positive news has led investors to price in increased odds of an August rate cut. This sentiment is likely to weigh on the British Pound ahead of the upcoming UK election on July 4, reinforcing a bearish outlook for GBP/USD.
USD Dynamics:
Conversely, the US Dollar has struggled to capitalize on recent gains despite expectations of an impending start to the Federal Reserve’s rate-cutting cycle in September. This has provided some support to the GBP/USD pair amid broader market uncertainty.
Technical Perspective:
From a technical standpoint, bearish momentum could intensify if the pair breaches the 100-day Simple Moving Average (SMA) support around 1.2640-1.2635. This could trigger further declines towards the 1.2600 psychological level, followed by the crucial 200-day SMA near 1.2560-1.2555 and the May monthly low around 1.2445.
Upside Potential:
On the upside, any recovery attempts might encounter resistance around 1.2685, followed by the 1.2700 mark and the 1.2715-1.2720 zone. Further hurdles include the weekly high near 1.2740, with a breakout potentially fueling short-covering rallies towards 1.2800. Continued strength could lead to a retest of the monthly high at 1.2860 and potentially challenge the year-to-date peak around 1.2900, reached in March.
In conclusion, the GBP/USD pair faces downward pressure amid cautious market sentiment following the BoE’s dovish signals, while technical indicators suggest potential further downside if key support levels are breached. Upside movements hinge on overcoming immediate resistance barriers amid ongoing market uncertainties.
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