GBP/USD Price Analysis – Oct 23, 2023

Daily Price Outlook

During Monday's Asian session, the GBP/USD pair struggled to maintain its upward momentum and lost some of its gains, hovering around the 1.2160 mark. However, this decline followed the release of discouraging United Kingdom (UK) Retail Sales data for September last Friday. Moreover, the robust US Dollar has exerted significant pressure on the GBP/USD currency pair. However, the US dollar was bolstered by the positive performance of US Treasury yields.

UK Retail Sales Decline Sparks Concerns About Inflation

It's worth noting that the monthly UK retail sales figures revealed a 0.9% decline, which came as a surprise compared to the anticipated 0.1% decrease. This followed a modest 0.4% increase in August. On an annual basis, sales were down by 1.0%, contrary to expert predictions.

However, the decline in retail sales indicates that consumers are experiencing financial pressure due to higher prices and increased borrowing costs. Thereby, this notable decrease in consumer spending is expected to impact inflation perceptions. Therefore, there is speculation that the Bank of England (BoE) might choose to keep the current interest rates at 5.25% during their November meeting.

US Dollar Strength and Fed's Stance Impacting GBP/USD Pair

Moreover, the US Dollar Index (DXY) is attempting to recover its recent losses and gained some traction, possibly due to robust economic data coming from the United States. Further, the strong performance of US Treasury yields is providing a lift to the US Dollar (USD), with the 10-year US Treasury yield presently standing at 4.96%, up by 0.92% at this time. Consequently, the strong US dollar is considered one of the primary factors restraining the GBP/USD pair.

Meanwhile, Federal Reserve (Fed) Chairman Jerome Powell, on Thursday, indicated that the central bank does not have immediate intentions to raise interest rates, which provided a lift to the GBP/USD pair. Powell also noted that they may need to consider tightening monetary policy further if they observe additional signs of economic growth or if the job market ceases to improve.

On Friday, Atlanta Fed President Raphael Bostic stated that he anticipates the US central bank will not lower interest rates until the middle of next year. Additionally, Fed Philadelphia President Patrick Harker voiced his preference for maintaining the current interest rates.

Furthermore, Fed Cleveland President Loretta Mester indicated that the US central bank might have reached the peak of the rate hike cycle but acknowledged that recent data could influence their future policy decisions.

As a result, the dovish stance taken by the Fed was regarded as the primary factor limiting the upward momentum of the US dollar and contributing to the gains in GBP/USD.

GBP/USD - Technical Analysis

As global markets grapple with ongoing macroeconomic uncertainties, the GBP/USD currency pair offers a compelling narrative for investors and traders alike. As of the latest data, the pair stands at 1.21465, registering a slight decline of 0.10%. Analyzing the 4-hour chart provides a more granular perspective on the potential paths the currency pair might traverse in the near future.

Central to this analysis is the pivot point, currently situated at 1.2178. This metric serves as a barometer for potential bullish or bearish shifts. On the upside, GBP/USD faces immediate resistance at 1.2217. If bullish momentum persists, traders could eye the subsequent resistance levels of 1.2274 and 1.2334. Conversely, should the pair come under selling pressure, immediate support lies at 1.2125, with deeper supports at 1.2068 and 1.2020, respectively.

Diving deeper into the technical indicators, the Relative Strength Index (RSI) for GBP/USD reads at 47. While the 50-mark often demarcates bullish from bearish sentiment, the current RSI suggests a neutral stance with a slight bearish lean, given that it is below the 50 threshold.

Adding another layer of analysis, the Moving Average Convergence Divergence (MACD) provides crucial insights. With an MACD value of 0.00038 and a signal value of -0.00081, the MACD line's position above the signal line signifies potential upward momentum in the short term—a bullish indication.

Lastly, the 50-Day Exponential Moving Average (EMA) is pegged at 1.2173, almost in line with the current price. The GBP/USD's proximity to this EMA indicates a tussle between the bulls and the bears, with neither side having a clear advantage currently.

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