The British Pound (GBP) slightly declined against the United States Dollar (USD) in European trading, marking what could potentially be its worst month since August of the previous year. The Bank of England’s decision to keep interest rates on hold at 5.25% surprised the market, leading to uncertainty about future rate increases. While consumer inflation in the UK has slowed, it remains well above the Bank of England’s 2% target. The uncertain monetary policy and a weakening economy are factors contributing to the downward pressure on the Pound, especially in comparison to a strong US Dollar.
In contrast to the UK, the interest-rate outlook in the US appears more defined. Several Federal Reserve officials, including Minneapolis Fed Governor Neel Kashkari and Fed Governor Michelle Bowman, have expressed the expectation of rate increases this year. The market’s focus this week will be on US economic data, particularly the durable goods order figures. However, there is limited significant economic data from the UK on the schedule, with final Gross Domestic Product (GDP) numbers for the second quarter expected to have little lasting impact on the Pound. Despite mixed economic numbers from the US, the Dollar is expected to dominate trade as long as the interest rate outlook remains unchanged.
Technical analysis of GBP/USD suggests a consistent retreat of the Pound since July 13, with a clear ‘head and shoulders’ pattern on the daily chart. The pair fell below the first Fibonacci retracement level and is now trading within a band of support. Near-term downward channel support is approaching current market levels, and breaking the downtrend will require the pair to rise significantly. Client sentiment towards GBP/USD appears bullish, although contrarian indicators suggest caution.
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