Sustained economic growth in the US contributes to yet another recovery of the dollar, causing bearish investors to fight. This is especially true for the GBPUSD pair, which is in a downward channel.
By now, the dollar has reached a 10-month high, while benchmark 10-year Treasury yields rose to 16-year highs.
As forecasts released on Wednesday showed, a majority of Federal Reserve (Fed) members saw one more rate hike needed in the next three months. However, investors continue to price in about a 50% chance of further tightening in 2023.
According to ANZ analysts, the strengthening of the US dollar will continue until the end of the year. However, expectations of lower rates and slower economic growth will lead to another fall in the dollar next year. A pause in the cycle of rate hikes by the US central bank, in their opinion, should slightly restrain the growth of the US currency.
At the moment, investors are focusing their attention on the consumer spending price index, which is the Fed's preferred inflation indicator. These figures may give more signals about possible interest rate hikes by the regulator this year. The data is expected to be released on Sept. 29.
Friday's weak UK PMI figures, combined with other recent reports, suggest that the Bank of England won't likely raise rates following its decision to leave them unchanged on Thursday. This is the view expressed by RBC's senior economist, Cathal Kennedy.
According to his assessment, PMI data is falling faster than previously expected. RBC argues that the Bank of England has already completed the cycle of monetary policy tightening.
The GBPUSD currency pair is forming a downtrend on the H4 timeframe.
In terms of wave analysis, the price is forming the third descending wave on the H2 timeframe. This wave has almost materialized. The indicator Stochastic Oscillator (standard values) demonstrates divergence, which indicates an imminent trend reversal. The nearest reversal point is at 1.2140.
The short-term outlook for the GBPUSD pair is to buy at around 1.2140.
The target is at the level of 1.2350.
Part of the profit should be fixed near the level of 1.2250.
A Stop-loss should be placed near the level of 1.2040.
The bullish trend is of a short-term nature, so it is suggested to limit the trading volume to no more than 2% of your capital.