Daily Price Outlook
During the European trading session, the GBP/USD currency pair has continued its bearish slide, struggling to find any support and remaining around 1.2149.
It even touched an intra-day low of 1.2123. This downward movement can be attributed to ongoing concerns over the UK's economic troubles, with stubborn inflation and stagnant growth fueling worries of stagflation. The British Pound (GBP) has been facing significant pressure as a result.
Meanwhile, the US dollar surged to its highest level in over two years on the back of strong US jobs data released on Friday.
This combination of weak economic data from the UK and a stronger US Dollar has been pushing the GBP/USD pair lower.
GBP Struggles Amid Stagflation and Rising Bond Yields, Weighing on GBP/USD
On the GBP front, the British Pound (GBP) continues to struggle, primarily due to concerns about stagflation in the UK. Stubborn inflation combined with weak economic growth has created a challenging environment for the currency.
This combination is raising fears that the UK economy may remain stuck in a difficult situation for longer, keeping the GBP under pressure.
In addition to economic struggles, the recent increase in UK government bond yields is adding to the anxiety about the country’s financial stability.
Rising bond yields signal that investors may be worried about the UK's fiscal health, which is weakening confidence in the Pound.
Therefore, the UK’s economic struggles, including stagflation and rising bond yields, are weakening the British Pound (GBP).
Meanwhile, the US Dollar (USD) strengthens due to positive economic data. As a result, the GBP/USD pair is likely to continue its bearish trend.
US Dollar Strengthens on Positive Jobs Data, Weighing on GBP/USD Outlook
On the US front, the broad-based US dollar has gained strong momentum, reaching a two-year high against other currencies.
This surge was triggered by positive US jobs data, particularly the Nonfarm Payrolls (NFP) report, which showed the US economy added 256,000 jobs in December.
This exceeded expectations and boosted confidence in the US economy. Additionally, the unemployment rate dropped unexpectedly to 4.1%, reinforcing the view that the Federal Reserve (Fed) may maintain its aggressive stance on interest rates.
Investors are now expecting the Fed to pause its rate-cutting cycle at its upcoming policy meeting. Some are even speculating that the Fed may raise interest rates later this year, further supporting the US dollar.
As a result, US Treasury bond yields are likely to remain elevated, which adds to the strength of the US dollar.
This bullish outlook for the dollar, coupled with a risk-off sentiment in the market, is putting pressure on other currencies, including the British Pound (GBP).
However, the Relative Strength Index (RSI) on the daily chart for the GBP/USD pair is showing signs of being slightly oversold.
This suggests that the pair may experience a period of consolidation or a modest bounce before continuing its downward movement.
Investors may want to wait for a more favorable entry point before positioning for further declines in GBP/USD.
GBP/USD – Technical Analysis
The GBP/USD pair is trading at $1.21306, down 0.53% on the day, reflecting continued selling pressure amid a stronger U.S. dollar.
The 4-hour chart indicates that $1.21993, the pivot point, serves as a critical barrier for any potential recovery. Below this level, immediate support is located at $1.20880, with subsequent targets at $1.20174 and $1.19346.
On the upside, resistance levels are positioned at $1.23209, $1.24064, and $1.24962. The 50-day EMA at $1.24042 underscores a bearish outlook, with prices consistently trading below this trend indicator.
The RSI suggests a continuation of bearish momentum, though it approaches oversold territory, hinting at a possible consolidation phase.
The preferred strategy is to enter short positions below $1.22011, with a target of $1.20898 and a stop-loss set at $1.22710.
A sustained breach of the immediate support at $1.20880 could accelerate selling pressure, while a rebound above the pivot point might provide an opportunity for bulls to retest resistance levels. Traders should monitor the pair closely for volatility near these key levels.
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