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Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2500.
- Add a stop-loss at 1.2650.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2615 and a take-profit at 1.2700.
- Add a stop-loss at 1.2515
The GBP/USD exchange rate is hovering near the lowest level since June 13th after the latest statement by Jerome Powell. The pair has dropped sharply as the US dollar index (DXY) has soared to $104, the highest point in over two months. It has fallen by over 4.3% from its highest level since July.
Fed hikes to continue
The GBP/USD pair continued its freefall last week as traders reflected on the latest statement by Jerome Powell. In his speech at the Jackson Hole Summit, he noted that American inflation remained stubbornly high.
As such, he insisted that the bank could deliver another interest rate hike in September. If this happens, the bank will push them to 5.75%, the highest point in more than 23 years. The hike will come at a time when mortgage rates have been rising and are currently at the highest point in over two decades
On the positive side, there are signs that the American economy is doing well. The unemployment rate sits at 3.7%, the lowest level in over five decades. Retail spending and the housing sector are also thriving.
In a recent statement, the Atlanta Fed hinted that the economy will expand by 6% in the third quarter. The report cited the growing construction projects as companies take advantage of the Inflation Reduction Act (IRA), CHIPS Act, and the infrastructure bill.
The GBP/USD pair will be a bit muted on Monday because of the bank holiday in the UK. Therefore, the focus among investors will be the upcoming American economic data. The Conference Board will publish the latest consumer confidence data on Tuesday.
These numbers are expected to show that confidence dropped slightly in August. The other data will be the house price index (HPI) and the JOLTs job openings data. Later this week, the US will publish the latest PCE and non-farm payrolls (NFP) data.
GBP/USD technical analysis
The GBP/USD exchange rate has been in a bearish trend in the past few days. Last week, the pair flipped the important support levels at 1.2616 (August 3rd, August 14, and August 23 low) into a resistance. It also dropped below the support at 1.2593 (June 29th low).
The pair has also dropped below the 25-day and 50-day moving averages while the Stochastic RSI indicator has pointed upwards. The outlook for the pair is bearish, with the next target level to watch being at 1.2500.
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