GBPUSD continues its downtrend

29 May 2023 167
GBPUSD continues its downtrend

Our expectations for the strengthening of the dollar coincided with the actual dynamics of the GBPUSD currency pair. Quotes finally fell out of the rising range and formed a downtrend.

The British pound could have been supported by last week's resilient inflation, which came out worse than expected. However, this did not happen. The strengthening of the dollar on the basis of the future borrowing by the U.S. Treasury has become a more important event.

Inflation in the UK is higher than expected. The rise in prices encourages the Bank of England to continue raising its key rate.

The consumer price index was 8.7% in April. The data exceeded all economists' forecasts. Bank of England expectations were at 8.4%. Base prices excluding food, energy and tobacco products rose to 6.8% in April. This is more than the March figure of 6.2%.

A bit later, the U.S. also reported core inflation, which is worse than expected. The main focus of investors was on the decision regarding the U.S. debt ceiling.

On Sunday, U.S. President Joe Biden and House Speaker Kevin McCarthy came to an agreement on the debt ceiling. It will stop at $31.4 trillion until January 1, 2025. According to the president, the agreement is ready for a vote in Congress. If this deal is approved, it will prevent the default of the U.S. economy.

Now the U.S. Treasury will start borrowing money on the debt market to replenish the budget. Yields on the country's government bonds will begin to rise, which will be an additional support for the growth of the dollar. Thus, the dollar index may strengthen against all currencies, including the British pound.

According to the technical analysis, the GBPUSD currency pair continues its downtrend. It managed to consolidate under the important level of 1.24. However, the main downside targets have not been reached yet, so it is possible to continue opening short positions. The level of $1.2263 will be the downside target. It corresponds to the lower boundary of the rectangle, which was relevant at the beginning of the year. Stop-loss can be set at the break down of the trend at 133.2. Stop-loss can be set at the break of up of the trend at 1.2390.

The GBPUSD currency pair decline:

Take profit – 1.2263

Stop-loss – 1.2390

This content is for informational purposes only and is not intended to be investing advice.

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