US Dollar Forecast: GBP/USD Vulnerable if Monthly Low Breaks

US Dollar Outlook: GBP/USD

GBP/USD seems to be responding to the negative slope in the 50-Day SMA (1.2285) after registering a fresh monthly high (1.2429) at the start of the week, and the exchange rate may give back the advance from the October low (1.2037) if it fails to hold above the monthly low (1.2096).

US Dollar Forecast: GBP/USD Vulnerable if Monthly Low Breaks

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GBP/USD carves a series of lower highs and lows as it gives back the advance following the softer-than-expected US Non-Farm Payrolls (NFP) report, and the exchange rate may track the negative slope in the moving average as the Federal Reserve keeps the door open to implement higher US interest rates.

A recent speech by Governor Michelle Bowman suggests the Federal Open Market Committee (FOMC) will continue to combat inflation as ‘recent data indicate that economic activity has accelerated,’ and a growing number of Fed officials may prepare US households and businesses for a more restrictive policy as Governor Bowman expects to ‘increase the federal funds rate further to bring inflation down to our 2 percent target in a timely way.’

In turn, speculation surrounding Fed policy may sway GBP/USD as the Bank of England (BoE) appears to be at or nearing the end of its hiking-cycle, and developments coming out of the UK may drag on the exchange rate under pressure amid signs of a slowing economy.

UK Economic Calendar

FOREX.com Economic Calendar

Fears of a recession may keep the BoE on the sidelines as the Gross Domestic Product (GDP) report is anticipated to show the economy contracting 0.1% in the third quarter of 2023, but a better-than-expected GDP print may generate a bullish reaction in GBP/USD as it raises the scope for higher UK interest rates.

With that said, it remains to be seen if GBP/USD will track the negative slope in the 50-Day SMA (1.2285) as it continues to pullback from a fresh monthly high (1.2429), and the exchange rate may give back the advance from the October low (1.2037) if it fails to hold above the monthly low (1.2096).

GBP/USD Price Chart –Daily

Chart Prepared by David Song, Strategist; GBP/USD on TradingView

• GBP/USD registered a fresh monthly high (1.2429) as it pushed above the former support zone around the May low (1.2308), but the exchange rate carves a series of lower highs and lows amid the failed attempts to close above the 1.2300 (50% Fibonacci retracement) to 1.2390 (38.2% Fibonacci extension) region.
• In turn, GBP/USD may track the negative slope in the 50-Day SMA (1.2285) as it gives back the advance from the monthly low (1.2096), with a breach below the 1.2080 (23.6% Fibonacci extension) to 1.2090 (78.6% Fibonacci retracement) area opening up the October low (1.2037).
• Nevertheless, the recent weakness in GBP/USD may end up short lived as long as it holds above the monthly low (1.2096), but need a close above the 1.2300 (50% Fibonacci retracement) to 1.2390 (38.2% Fibonacci extension) region to bring 1.2470 (50% Fibonacci retracement) on the radar.

Additional Market Outlooks

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--- Written by David Song, Strategist

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