Jun 30, 2023

GBPUSD Correction Likely As Breakout Momentum Fades

The GBPUSD exchange rate has not been able to sustain its recent gains and may continue to fall.

GBPUSD Daily Chart

GBPUSD: Daily Chart

The GBPUSD exchange rate traded above the 1.28 level but has since fallen below the previous high of 1.2680. The pair may now test the moving average, with a further breakdown potentially targeting 1.23.

The next piece of data from the British economy will be a GDP reading on Friday. However, that will be a final reading and is not expected to differ from the 0.2% figure that analysts predict for Q1.

The US PCE price index figures, which will be published later in the day, are more important data. Inflation has continued to decline following the Federal Reserve’s interest rate hike policy, and analysts will have another opportunity to assess domestic price movements. The Core PCE index has remained between 4.6% and 4.8% since November.

The Michigan Consumer Sentiment Index, which is expected to rise to 63.9 from 59.2, will be the final data point before the weekend. After the debt ceiling issue was resolved and inflation continued to fall, US consumers are becoming more optimistic.

Morgan Stanley now expects the Federal Reserve to raise rates again in July after Fed Chair Jerome Powell’s speech. Powell said the bank will “be as restrictive as necessary” to bring inflation back to its 2% target. According to Powell, this is not expected to happen before 2025.

Central Bank Decisions Steer The Economy

The most recent manufacturing data from the UK has bolstered the argument for further Bank of England interest rate increases, as consumer price inflation is above target. Manufacturers continued to suffer as output fell for the eleventh time in the previous 12 months, according to the S&P Global/CIPS PMI for June.

Despite this, business activity in the UK’s private sector grew for the fifth consecutive month in June. However, Chris Williamson of S&P Global Market Intelligence stated that the “June flash PMI survey indicates that the UK economy has lost momentum again after a brief growth spurt in the spring and looks set to weaken further in the months ahead.”

Williamson added that the survey’s price gauges indicate that consumer price inflation will remain well above the Bank of England’s target into 2024, which will strengthen the case for further interest rate increases.

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