British Pound Outlook: GBP/USD
GBP/USD continues to bounce back from a fresh monthly low (1.2111) to halt a six-day decline, and a move above 30 in the Relative Strength Index (RSI) may accompany a near-term rebound in the exchange rate like the price action from last year.
GBP/USD Forecast: RSI Attempts to Climb Out from Oversold Territory
GBP/USD snaps the series of lower highs and lows carried over from the previous week despite the ongoing rise in long-term Treasury yields, and data prints coming out of the US may lead to a larger rebound in the exchange rate as the Personal Consumption Expenditure (PCE) Price Index is anticipated to show slowing inflation.
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US Economic Calendar
The core PCE, the Federal Reserve’s preferred gauge for inflation, is expected to narrow to 3.9% in August from 4.2% per annum the month prior, and evidence of easing price pressures may produce headwinds for the Greenback as it encourages the Fed to retain the current policy.
Nevertheless, a stronger-than-expected PCE report may drag on GBP/USD as it puts pressure on the Federal Open Market Committee (FOMC) to carry out a more restrictive policy, and Chairman Jerome Powell and Co. may continue to show a greater willingness to keep US interest rates higher for longer as inflation remains above the 2% target.
In turn, the outlook for GBP/USD may continue to evolve as the Bank of England (BoE) votes 5-4 to keep UK interest rates on hold, and the exchange rate may exhibit a bearish trend over the remainder of the year if it tracks the negative slope in the 50-Day SMA (1.2600).
With that said, GBP/USD may stage a larger rebound ahead of October as it snaps the series of lower highs and lows carried over from the previous week, and a move above 30 in the Relative Strength Index (RSI) may accompany a near-term rebound in the exchange rate like the price action from last year.
GBP/USD Price Chart –Daily
Chart Prepared by David Song, Strategist; GBP/USD on TradingView
- The head-and-shoulders pattern from earlier this year appears to have run its course as GBP/USD halts as six-day decline, and the bearish momentum may continue to abate as the Relative Strength Index (RSI) attempts to climb out of oversold territory.
- A move above 30 in the RSI may keep GBP/USD above 1.2090 (78.6% Fibonacci retracement), with a break/close above the 1.2300 (50% Fibonacci retracement) to 1.2390 (38.2% Fibonacci extension) region bringing the 1.2470 (50% Fibonacci retracement) to 1.2520 (23.6% Fibonacci extension) zone back on the radar.
- However, GBP/USD may struggle to hold its ground as long as the RSI holds below 30, with a break/close below 1.2090 (78.6% Fibonacci retracement) opening up the 1.1780 (50% Fibonacci extension) to 1.1840 (38.2% Fibonacci retracement) area, which incorporates the March low (1.1803).
Additional Market Outlooks
--- Written by David Song, Strategist
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