. GBP/USD Under Pressure at 1.2700 as Fed Minutes Awaited - 05 July

GBP/USD Under Pressure at 1.2700 as Fed Minutes Awaited

GBP/USD Under Pressure at 1.2700 as Fed Minutes Awaited

05 Jul 2023

GBP/USD Remains Weaker near 1.2700 as Investors Await Fed Minutes for Directional Bets

Fundamental Overview

Early on Wednesday, the GBP/USD exchange rate experiences downward pressure due to a slight strengthening of the US Dollar. The pair is currently trading near the 1.2700 level. This downward pressure on the British Pound is primarily driven by hawkish expectations surrounding the Federal Reserve, economic challenges, and ongoing trade concerns between the United States and China. Market participants are eagerly awaiting the release of the Fed minutes to gain new insights and make informed trading decisions.

GBP/USD started the week with a decline, but it later reversed its course during the American session on Monday and closed the day almost flat near 1.2700. Tuesday’s trading activity remained light due to the US Independence Day holiday, resulting in the pair moving within a narrow range.

The latest ISM Manufacturing PMI survey data indicated a continued decline in economic activity within the manufacturing sector during June. This led to the US Dollar losing ground against its counterparts on Monday. Additionally, the Employment Index dropped below 50, signaling a contraction in sector payrolls. Over the same period, the Prices Paid Index, which measures inflation, decreased from 44.2 to 41.8. Consequently, the US Dollar Index retreated from its session high around 103.30 to 103.00, reflecting the negative impact of the PMI survey on the valuation of the USD.

Despite these developments, given the relatively stronger performance of the US economy, investors may hesitate to bet on further strength in the Pound Sterling against the US Dollar in the near term.

In a recent report by Rabobank focusing on the Pound Sterling’s outlook, analysts expressed their view that concerns about enhanced growth risks could limit the upside potential of GBP. They highlighted that despite widespread expectations regarding potential Bank of England (BoE) rate hikes in the coming months, tighter monetary policy doesn’t always translate into a stronger Pound, as witnessed in several instances last year.

GBP/USD Technical Analysis Daily Chart

Technical Overview

  • GBP/USD is currently trading within an upward channel.
  • The pair remains positioned above all Simple Moving Averages (SMA).
  • The Relative Strength Index (RSI) indicates a bullish bias, while the Stochastic oscillator suggests no clear trend at the moment.

Resistance level: 1.2711 Immediate support level: 1.2690

How to Trade GBP/USD

After experiencing a rapid increase, the GBP/USD price retraced to test the first support level. However, it failed to breach this level and subsequently resumed its upward movement. Currently, the price is oscillating around a significant resistance zone. If this zone is successfully surpassed, further upside potential may be expected.

Trade Suggestion

  • Entry: Buy at 1.2719
  • Take Profit: 1.2756
  • Stop Loss: 1.2687

Frequently Asked Questions (FAQs)

Q: What are the factors influencing the weakness of GBP/USD near 1.2700?

A: The current weakness in GBP/USD can be attributed to a slight strengthening of the US Dollar, driven by hawkish expectations regarding the Federal Reserve’s monetary policy. Economic challenges and ongoing trade concerns between the US and China are also contributing to the pressure on the pair.

Q: Why did GBP/USD reverse its course during the American session on Monday?

A: The reversal in GBP/USD during the American session on Monday can be attributed to a combination of factors, including market sentiment, technical levels, and potential profit-taking by traders. The pair closed the day almost flat near 1.2700.

Q: What are the key levels to watch in GBP/USD technical analysis?

A: In GBP/USD technical analysis, the immediate resistance level to monitor is 1.2711. On the downside, the nearest support level is at 1.2690.

Q: What is the outlook for the Pound Sterling against the US Dollar?

A: The outlook for the Pound Sterling against the US Dollar remains subject to various factors. Analysts at Rabobank suggest that concerns about enhanced growth risks could limit the upside potential of GBP, despite expectations of potential Bank of England rate hikes in the coming months.

Q: How is GBP/USD positioned in terms of technical indicators?

A: GBP/USD is currently trading within an upward channel on the daily chart. The pair is positioned above all Simple Moving Averages (SMA). The Relative Strength Index (RSI) indicates a bullish bias, while the Stochastic oscillator suggests no clear trend at present.

Q: What is the suggested trade for GBP/USD?

A: Based on the current technical outlook, a trade suggestion for GBP/USD is to buy at 1.2719, with a take profit level set at 1.2756 and a stop loss at 1.2687.