The Pound Sterling (GBP) is experiencing a significant sell-off, driven by lingering uncertainty surrounding the Bank of England‘s (BoE) restrictive monetary policy stance amid mounting risks of a technical recession in the United Kingdom. The GBP/USD pair is under pressure as a prevailing risk-averse market sentiment precedes the release of crucial United States inflation data for December.
The trajectory of the Pound Sterling hinges on the forthcoming speech by Bank of England Governor Andrew Bailey, where he is expected to offer insights into the outlook on interest rates and inflation. Investors are closely monitoring whether the BoE will prioritize economic recovery or focus on curbing inflationary pressures. Additionally, attention is turning to upcoming economic data, particularly the release of UK factory data scheduled for Friday. Anticipation is high for a potential rebound in Industrial and Manufacturing Production figures.
In terms of technical analysis, the Pound Sterling has retreated to a near two-day low of 1.2670 against the US Dollar, reflecting cautious investor sentiment ahead of critical US inflation data. The GBP/USD pair faced resistance at the pivotal level of 1.2770, resulting in a decline.
Examining the daily time frame, the Cable struggles to maintain ground above the 61.8% Fibonacci retracement, situated at 1.270 (measured from the high on 13 July 2023 at 1.3142 to the low on 4 October 2023 at 1.2037). Support for Pound Sterling bulls is provided by the 20-day Exponential Moving Average (EMA) around 1.2680.
The Relative Strength Index (RSI) (14) has shifted into the 40.00-60.00 range, indicating a consolidation phase on the horizon. These technical indicators collectively underscore the challenging landscape faced by the Pound Sterling in the current market conditions.