GBP/USD slides to two-month lows amid global economic woes, hawkish Fed stance

GBP/USD slides to two-month lows amid global economic woes, hawkish Fed stance
  • GBP/USD falls 0.18%, as concerns over global business activity and China’s real estate market woes fuel a risk-off environment.
  • US Dollar Index (DXY) advances 0.19% to around two-month highs, buoyed by Powell’s hawkish remarks on inflation and rate hikes at Jackson Hole.
  • Mixed US economic data, including lower-than-expected Initial Jobless Claims, adds complexity to rate hike expectations, keeping traders cautious.

The Pound Sterling (GBP) finished the week on a lower note against the US Dollar (USD), falling to hold above the 1.2600 figure, with the GBP/USD sliding toward new two-month lows. As the New York session winds down, the pair is trading at 1.2576, down 0.18%, after hitting a daily high of 1.2654.

Pound struggles on risk-off mood, strong US Dollar weighs, markets eye next week’s US economic data

The GBP/USD was affected by several reasons. Reports that slowing global business activity, as revealed by S&P Global PMIs featured in the UK and the US, triggered flows towards safety on a risk-off mood and weighed on the major. Alongside that, China’s real estate market woes, with Evergrande’s filing for bankruptcy in New York last Friday and Country Garden’s removal from the Hong Kong Hang Seng index, increased worries about a worldwide economic downturn.

Consequently, the Greenback (USD) advanced, as shown by the US Dollar Index (DXY), which measures the buck’s performance against a basket of six currencies that includes the Cable, advanced 0.19%, finished the week at 104.187, at around new two month highs.

Data from the United States (US) witnessed a mixed report in Durable Goods Orders, while the labor market remained hot, as the US Bureau of Labor Statistics (BLS) revealed. Initial Jobless Claims for the week ending August 19 rose by 230K, below estimates of 239K, justifying additional rate increases by the US Federal Reserve (Fed), as the Chair Jerome Powell emphasized on Friday, in his speech at the Jackson Hole Symposium.

At Jackson Hole, the US Federal Reserve Chair Jerome Powell highlighted the ongoing concerns of the central bank regarding high inflation. He stated that further rate hikes could be “appropriate,” though he stressed the US central bank would continue to rely on incoming data. Powell mentioned even though a couple of months showed an acceleration in the disinflation process, he underscored the significance of staying aligned with the Fed’s 2% inflation target, signaling that there is still a considerable journey ahead.

Powell stated that the robust economic expansion and a constrained labor market could pave the way for additional tightening measures. He noted that further rate hikes would be warranted if these positive economic indicators do not exhibit signs of easing.

Recently, Philadelphia Fed’s Patrick Harker remarked that current interest rates are already at a restrictive level, and in the event inflation falters, there might be a necessity for additional rate hikes. Conversely, Cleveland Fed President Loretta Mester acknowledged that the economy has gained momentum, as evidenced by GDP and labor market indicators. She highlighted that a lower growth rate would be necessary to temper inflation while emphasizing the ongoing debate around whether the present rates are sufficiently restrictive to attain the inflation target.

Next week, the UK economic docket will be absent. On the contrary, the US economic docket will feature the CB Consumer Confidence, JOLTs report, preliminary GDP data, inflation figures, ISM PMI, and further Fed speakers.

GBP/USD Price Analysis: Technical outlook

The GBP/USD daily chart portrays the pair as neutral to downward biased, but the break below the latest market structure swing low at 1.2590 could exacerbate a test of the 200-day Moving Average (DMA) at 1.2397. Firstly, sellers must drag the exchange rate below the 1.2500 figure. A breach of the latter would expose the 1.2400 figure, followed by the 200-DMA. Conversely, if buyers reclaim 1.2600, that could open the door for a recovery towards the 1.2700 mark.

GBP/USD Daily chart

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Read More

Leave a Reply

Your email address will not be published. Required fields are marked *