- GBP/USD is struggling to gain higher due to poor UK economic conditions.
- Due to Brexit, the UK is prone to further dismal conditions in Q1 2023.
- The US dollar remains strong due to Fed’s hawkishness.
The GBP/USD outlook is neutral to bearish on Friday as the UK’s dismal economy and risk aversion stemming from China are weighing on the sterling.
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During Friday’s opening in London, the GBP/USD price accepts offers to refresh intraday lows near 1.2040, reversing the previous day’s gain, which is the biggest in two weeks. Therefore, the cable pair justifies the recent pause in US Treasury and Dollar yield declines as well as negative signals surrounding the UK economy.
According to The Times, the UK Prime Minister is willing to halve financial support for businesses’ energy bills due to cost concerns. Following the reversal of payroll tax hikes last month, the UK government’s borrowings hit their highest levels in November.
The FT also reported that UK rents and values will fall off a cliff in the first quarter of 2023 due to Brexit.
Furthermore, UK workers’ strikes are becoming violent, affecting GBP/USD rates. Since years of high inflation, public sector workers have been striking for higher wages in Britain.
Airfinity, a UK healthcare data company, also mentions that COVID-19 will likely kill around 9,000 people in China every day, double what was expected the day before and higher than official estimates.
While the economic downturn in the US and Europe will slow the decline in pound/dollar prices and the US dollar’s strength, chances of a virus peak in China and the discovery of a Covid pill are positive.
Although Wall Street closed higher on Tuesday, 10-year Treasury yields fell modestly to 3.8% amid these playoffs.
Compared to their US counterparts, the UK leaders are facing many more issues than their US counterparts, which will likely keep the GBP/USD pair under pressure.
GBP/USD price technical outlook: Rangebound above 1.2000
The GBP/USD price is playing around the 20-period SMA on the 4-hour chart with no clear technical bias. The demand zone still protects the price at 1.2000.
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The pair found strong supply near the 50-period SMA, and since then, the price has been struggling to find any buying momentum, even on the lower timeframes. Due to a lack of market activity, the price is expected to stay in a tight range.
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Saqib Iqbal
