The GBP/USD pair is entering a bearish consolidation phase, hovering near its lowest levels since November 2023, around the 1.2200 mark, during the early Asian session on Monday. The fundamental outlook appears to favor bearish traders, suggesting further downside for the currency pair.
The British Pound (GBP) continues to struggle amid concerns over stagflation in the UK, driven by persistent inflation and stagnating economic growth. Additionally, rising UK government bond yields have raised concerns over the country’s fiscal stability, further weakening the GBP and contributing to a negative outlook for the GBP/USD pair, especially with the US Dollar (USD) remaining strong.
The USD Index (DXY), which tracks the dollar against a basket of currencies, surged to a two-year high on Friday following robust US employment data. The Nonfarm Payrolls (NFP) report revealed that the US economy added 256,000 jobs in December, far exceeding expectations, while the unemployment rate dropped unexpectedly to 4.1%. These results have fueled hawkish expectations for the Federal Reserve, strengthening the USD.
Market sentiment now leans toward the belief that the Fed will pause its rate-cutting cycle at its upcoming meeting, with some even anticipating a rate hike later this year. This outlook, coupled with high US Treasury bond yields and risk-off sentiment, continues to favor the dollar’s appreciation, leaving the GBP/USD pair vulnerable to further declines.
That being said, a slightly oversold Relative Strength Index (RSI) on the daily chart suggests that a brief consolidation or modest bounce could occur before the next downtrend. In the absence of significant economic data from either the UK or the US, the GBP/USD pair could face further losses, potentially testing levels below 1.2100, which marks the November 2023 swing low.
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