- Investors are scrambling for the safe-haven dollar amid recession worries.
- BoE will respond significantly to the proposed tax cuts in the UK.
- The pound might continue falling due to a loss of trust in the UK government.
Today’s GBP/USD price analysis is bearish. Jittery financial markets sent the safe-haven dollar to a new two-decade high as increasing global interest rates fueled concerns about an impending recession. Sterling dipped lower due to concerns over Britain’s dramatic tax cut proposals.
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The Federal Reserve has taken the lead in the fight against rising inflation worldwide. Fears of a global recession have increased due to growing borrowing costs, contributing to increased bond yields globally.
Huw Pill, the chief economist at the Bank of England, said over the weekend that the institution would respond to Kwasi Kwarteng’s proposed large tax cuts with a “significant policy response.”
He stressed that the central bank wishes to hold off until its meeting in November, ending market rumors of a probable interest rate increase between meetings.
“For the near-term, I think sterling’s going to remain pretty weak from here,” said Carol Kong, senior international economics and currency strategy associate at the Commonwealth Bank of Australia.
“It’s basically a crisis of confidence. It’ll be up to the UK government to resolve this … rather than the Bank of England.”
GBP/USD key events today
There will be a pending home sales report from the US later today. It will show the number of homes on contract to be sold but awaiting closing transactions. It excludes new construction. Investors will also be listening to speeches from policymakers, including BoE MPC member Cunliffe and Fed Chair Powell.
GBP/USD technical price analysis: Pullback fails to gather bullish momentum
Looking at the 4-hour chart, we see the price trading below the 30-SMA and RSI below 50. Although buyers came in at the 1.0402 mark, they could not gather enough momentum to beat the sellers in the market. This can be seen in the RSI, which did not reach the 50 mark.
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The pullback paused at 1.0901, allowing sellers to return. The next move will be to retest the new support level at 1.0402. Since there is still a lot of bearish momentum, the price will likely break this support and make a new low.
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Saqib Iqbal
