The decline in GBP/USD that began last Wednesday resulted in a sharp decline as US inflation statistics led to a major change in the pair’s medium-term outlook.
- Financial institutions that held firm on their view that the Federal Reserve would cut the federal funds rate in June were dealt a swift and hard punch last week.
- GBP/USD, which traded as high as near 1.27085 late on Tuesday and appeared to hold its value on Wednesday, was suddenly challenged by stronger-than-expected US Consumer Price Index numbers.
The foreign exchange market immediately trembled due to the rise in inflation, and GBP/USD was not immune to the sudden appreciation of the US dollar. GBP/USD’s rapid sell-off intensified on Wednesday, with GBP/USD falling to around the 1.25200 mark before regaining buying momentum. However, GBP/USD managed to remain slightly higher on Wednesday and Thursday, hovering around the 1.25600 area, but was suddenly hit again by poor outlook from US consumers regarding prices on Friday. The pound fell hard again and this time the 1.25000 level proved vulnerable.
GBP/USD price decline and bearish situation due to emerging reality
We are not only monitoring the 1.26000 mark, but also the 1.25000 level, which has been shown to be a fragile support level, and all this in just a few days, a new reality has emerged in the thinking of financial institutions. It may indicate that you are. For the past few months, many market participants considered the 1.26000 level to be an equilibrium, and it had actually shown a significant price increase since mid-December, but this ratio collapsed by the middle of last week.
The current value level of GBP/USD has returned to levels not seen since the second and third weeks of November 2023. The breakout of the 1.25000 level last Friday and the possibility of sustaining the value below is a warning sign. Trading early this week will need to be done with caution. If speculators think GBP/USD is oversold, that may prove to be correct, but financial institutions are bracing for the possibility that the US Fed will remain in a difficult position for the next couple of years. This could prove extremely difficult in the short term. A few months.
GBP/USD and speculative trading target 1.25000
Sure, earlier this week some traders may have believed that the 1.25000 mark would be a buying target for financial institutions, but looking at the 1-year technical chart, when the lack of rate cuts is considered a reality, We can see that GBP/USD has reached lower values. . Economic data from the US and UK will be interesting this week and the results will be factored into GBP/USD.
- Retail sales figures will be released from the US on Monday and will influence market sentiment. Weak US retail data will be needed to increase the likelihood of further buying for GBP/USD.
- Consumer price index figures will be released from the UK on Wednesday, and GBP/USD will react to them.
GBP/USD weekly outlook:
The speculative price range for GBP/USD is 1.23925 to 1.25695.
GBP/USD, which continued to fall sharply last week, will be closely watched for speculative reactions in the short term. If the GBP/USD price range stays within the downside factor early this week, it could set the stage for further downside testing. If the geopolitical conflict in the Middle East ends as it is, there is a possibility that the US dollar will appreciate as a safe-haven asset in the short term.
GBP/USD does look oversold, but some financial institutions may believe that the Bank of England needs to cut interest rates before the Federal Reserve, which could also lead to GBP/USD This may be partly responsible for the weakening of the US dollar. Traders need to remain vigilant and manage their risks wisely starting this week.
Even the main currency pair GBP/USD remained markedly volatile last week as nervous sentiment prevailed in the foreign exchange market based on the strength of the US dollar and technical levels were crushed. Traders looking for upside this week should not be overly ambitious. If the GBP/USD situation remains dynamic, quick trades could be a solid risk-taking tactic.
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