Home GBP/USD Outlook: Sterling Falling on UK’s Bleak Economic Situation

GBP/USD Outlook: Sterling Falling on UK’s Bleak Economic Situation

  • The pound has hit its lowest level since March 2020.
  • Goldman Sachs has forecast a recession in the UK starting later this year.
  • BoE has issued a recession warning as inflation hits a 40-year high.

On Monday, the GBP/USD outlook tumbled as the pair hit its lowest point since March 2020 as traders dumped the currency against the generally strong US dollar due to growing concerns about the economy’s future.

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Goldman Sachs recently revised its British economic forecasts downward, adding to the pound’s pessimistic outlook, which has fallen over 13% against the dollar this year.

British GDP is expected to slow significantly, and Goldman Sachs economists predict that a recession will start later this year due to rising prices’ impact on disposable household incomes.

According to Goldman, the recession will start in the fourth quarter of 2022, and by 2023, the economy will have shrunk by 0.6%.

The Bank of England (BoE) has issued a protracted recession warning as British inflation reaches a 40-year high. Energy price increases have made people more worried about the economy’s future.

“The weak pound is mostly dollar-related, but losses are twice as bad as the euro, and the sentiment is really bearish,” said Kenneth Broux, a currency strategist at Societe Generale.

GBP/USD key events today

The United States Conference Board’s (CB) Consumer Confidence Index gauges how confident consumers are about the state of the economy. Its ability to forecast consumer spending, which significantly impacts overall economic activity, makes it a leading indicator.

There will also be the JOLTs job openings report, a US Bureau of Labor Statistics survey to gauge the number of job vacancies.

GBP/USD technical outlook: Retesting the 1.17618 support-turned-resistance level

GBP/USD outlook

Looking at the 4-hour chart, we see the price trading below the 30- SMA, indicating the trend is bearish. After consolidating above the 1.17618 support level for some time, the price was resisted at the 30-SMA and broke below support.

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Bears have shown their strength by making strong bearish candles that found support at 1.16511. The RSI, which trades below 50, also supports bearish momentum. Currently, bulls have come in, and the price is retracing its earlier move. It will likely retest the recently broken support as resistance. This trend will remain bearish if the price keeps trading below the 30-SMA and the RSI trades below 50.

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Saqib Iqbal

Saqib Iqbal

Saqib Iqbal is a market analyst, prop fund trader and mentor, serving the industry with his analysis and educational content since 2011. The author has great exposure to different financial markets and institutions. He's well-known for his day trading reviews and multiple timeframe analysis.