UK retail sales and services PMI numbers will pressure the BoE to leave rate unchanged. However, sticky inflation remains an issue.
On Tuesday, the GBP/USD slid by 0.73%. Reversing a 0.70% rally from Monday, the GBP/USD pair ended the session at $1.21591. The GBP to USD pair rose to a Tuesday session high of $1.22886 before falling to a low of $1.21531.
UK private sector PMIs diminished hopes of a GBP/USD revival on Tuesday. Sentiment across the all-important services sector waned, with the sector contracting for the third consecutive month.
The UK services sector contributes over 75% to the UK economy. A third consecutive monthly contraction raised the prospects of a UK economic recession. Coupled with the larger-than-expected slump in retail sales, the Bank of England may have sufficient data points to leave interest rates unchanged.
BoE Governor Andrew Bailey and Chief Economist Huw Pill recently described monetary policy decisions as finely balanced. A weakening economy, high wage growth, and persistent inflation offer no policy certainties.
Lingering bets on a BoE rate hike may provide price support. However, the deteriorating macroeconomic environment will be a headwind.
There are no UK economic indicators for investors to consider. The lack of stats leaves BoE policy bets and risk appetite to guide the GBP/USD pair.
Later today, US new home sales will garner investor interest. Elevated mortgage rates have impacted disposable income, increasing the threat of a weak demand outlook.
The US construction sector contributes less than 10% to the US economy. However, US private consumption contributes over 65% to the economy. A weaker demand outlook would ease demand-driven inflationary pressure and allow the Fed to take a less hawkish Fed rate path.
The numbers warrant consideration. However, US Core PCE Price Index and personal spending figures on Friday will have more influence on the Fed.
GBP/USD near-term trends hinge on US inflation and personal spending numbers, out on Friday. Hotter-than-expected Core PCE Price Index figures may reignite bets on a December Fed rate hike. More hawkish bets on Fed rate hikes would tilt monetary policy divergence in favor of the US dollar.
The GBP/USD pair remained below the 50-day and 200-day EMAs, affirming bearish price signals.
A GBP/USD break below the $1.21216 support level would support a move toward $1.20000. Market risk sentiment and Bank of England forward guidance will influence buyer appetite for the Pound
However, a pickup in market risk sentiment could drive demand for the Pound. A return to $1.22500 would bring the 50-day EMA into view.
The 14-period daily RSI reading of 44.16 indicates a GBP/USD fall through the $1.21216 to sub-$1.21 before entering oversold territory.
The GBP/USD hovers below the 50-day and 200-day EMAs, reaffirming bearish price signals.
A GBP/USD break above the 50-day EMA would support a move toward the 200-day EMA.
However, a fall through the $1.21216 support level would bring sub-$1.20000 into play.
With an RSI reading of 48.03 for the 14-period 4-hourly Chart, the GBP/USD may break below the $1.21216 support level before entering oversold territory.
With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.