After a quiet Asian session on Thursday, GBPUSD came under modest downward pressure and retreated to the 1.2553 area in the European morning. The pair’s near-term technical forecast suggests that the downtrend remains.
The pound sterling witnessed during the Asian and European trading sessions today against the US dollar. A sideways trend that ended at the beginning of the American session.
The UK Office for National Statistics (ONS) reported that GDP contracted 0.3% quarter-on-quarter in the fourth quarter. With this reading following the 0.1% contraction recorded in the third quarter, the UK economy officially slipped into technical slump.
Other data from the UK revealed that industrial production and industrial production expanded by 0.6% and 0.8% respectively month-on-month in December.
The US economic calendar will also contain the January retail sales report. Since this data has not been adjusted to match price changes, it is unlikely to trigger a noticeable reaction unless it differs significantly from the market’s forecast of -0.1%.
This does not mean that it will not happen, and as we can see on the 4-hour chart, the correction led to a rebound from the 61.8% Fibonacci retracement level after breaking through the top formation earlier in the month, and it looks like it was another bearish signal.
What will be interesting are momentum indicators as we approach those low levels, although they already look in decline from what may be a red flag. While support at the 1.2553 low area remains flat, the risk of a rebound remains. The gains will be positive for the cable.
GBPUSD price is affected by the rise in recessions in the United Kingdom
The UK fell into recession in the second half of last year after fourth-quarter GDP figures showed a sharper-than-expected contraction.
While a recession was expected before the release, the fourth-quarter figures were slightly worse despite December’s better-than-expected performance.
The UK has been heading for recession for some time, but despite the inevitable headlines, today’s data doesn’t change much. The economy is not growing, nor has it grown for the better part of the past two years. But only on this occasion, the situation turned slightly in the other direction and recorded two small negative quarters of growth.
Not that steady growth is something worth celebrating, of course, but many fear it’s much worse when interest rates start to rise and rise to the level they have reached. The economy, like those in many other countries, has shown great resilience and is expected to rebound again this year.
Clearly, the Bank of England will not be affected by the technical recession, as Governor Bailey hinted earlier this week, but weak household spending may indicate that demand is not as strong as they expected. We’ll get another update on that tomorrow from the January retail sales figures.
With inflation expected to fall to the target in the second quarter, and possibly more after this week’s readings, the debate over interest rate cuts may intensify earlier than thought. Clearly, slower wage growth would help to achieve this considerably.
GBPUSD fell this week on the back of the data that came out but has yet to surpass its low earlier this month.
GBPUSD price falls as retail data emerges
Across the pond, the pound has suffered bigger losses, becoming the weakest performing currency today. Sterling gave up most of its gains earlier in the week, after GDP figures confirmed the UK’s slide into recession. This, combined with lower than expected CPI figures, is likely to reduce the Bank of England’s hawkish voices. Market participants are recalibrating their expectations, reverting to expecting three rate cuts during the year.
The Bank of England may face renewed pressure as it continues to rethink its cautious stance on monetary policy in England amid speculation that persistently high interest rates are weighing heavily on economic activity in the UK.
The safe-haven US dollar is located as the dollar’s decline intensified at the start of the US session, driven by unexpectedly weak retail sales data for January. This disappointing performance is reignited debates about the enduring strength of consumer spending, a crucial factor in fueling inflation. Although a single data point does not dictate the broader economic narrative, it nevertheless re-raises speculation about a possible rate cut by the Fed in May, although no move is likely in March..
In contrast to the sterling dollar, the Swiss franc emerged as the standout performer during the day, recovering some of its losses incurred earlier in the week. The New Zealand dollar and Japanese yen were also ranked among the strongest currencies today, while the Canadian dollar lagged just behind the pound sterling and the dollar..
Analysis of the price of sterling dollar in a downtrend
GBPUSD analysis: bearish trend and significant selling power during the US session. The pair is currently trading at $1.2553, and the chart shows overlap of moving averages below most of them. The MACD indicator indicates a negative trend and the presence of selling force.
