The GBPUSD currency pair keeps moving within the medium-term downtrend. The pair is gradually approaching the May lows near the 1.231 mark. The current week is rich in events that can push the GBPUSD ratio to this level. Both fundamental and technical factors seem to signal further GBPUSD decline.
First of all, the dynamics of the pound and the dollar rates will be influenced by the meetings of the Fed and the Bank of England. The American regulator will make a decision on the level of interest rates on Wednesday. According to market participants' estimates, the probability of a pause has reached 99%. However, the Fed's actions in November and December remain an issue. Jerome Powell will certainly not forget to mention the possibility of additional tightening of monetary policy, especially if inflation continues to accelerate.
In turn, the Bank of England will hold its next meeting the day after its American counterparts. In this case, the key rate is very likely to be raised by 0.25% to 5.5%. Thus, the level of the key rate in the U.S. and the UK should equalize. But the equality of rates does not at all guarantee the end of pound-dollar decline.
The main reason for the imbalance lies in inflation. While nominal rates in the U.S. and the UK are expected to become equal, the real yields on assets in national currencies are very different. The U.S. inflation rate, according to the latest data, is 3.7%. At the same time, price growth in the United Kingdom is at the level of 6.8%. Moreover, new data, which is to be released on Wednesday, may show an acceleration of British inflation to 7.1%. That is, the real yields of pound-denominated bonds are almost twice lower compared to similar assets in dollars. This is an important factor in GBPUSD rate decline.
The level of 1.231 is now the main downside target for GBPUSD. Technical indicators, despite the stable downtrend, do not fall into the oversold zone. From this point of view, there are no significant obstacles for further price decline.
Consider the following trading strategy:
Sell GBPUSD no higher than the level of 1.245. Take profit - 1.231. Stop loss - 1.254.
Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion
This content is for informational purposes only and is not intended to be investing advice.
