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GBP/USD Reversal Fails Again, on UK Recession Worries

GBP/USD has been bullish since late September last year, when the Bank of England intervened and stopped the crash in the GBP. The USD has turned bearish on the other hand and as a result, this pair has been making considerable gains, climbing almost 25 cents from the bottom, and touching 1.85 last month.

But, it has been displaying signs of exhaustion in the last two weeks and the price retreated lower, falling to 1.2590 toward the end of last week, where it met the 50 SMA (yellow) on the daily chart, as displayed above. That moving average provided support and the price bounced off it on Friday, increasing to 1.2720s.

Although yesterday this pair faced selling pressure in the European session as momentum for a deeper pullback continues to build. At the end of the day, GBP/USD finished with little change, which shows hesitation after the strong bullish candlestick on Friday.

GBP/USD H4 Chart – The 50 SMA Acting As Resistance

Buyers failing to push the price above the 50 SMA

The 1.2700 level continues to be a difficult level for GBP/USD bulls to hold above, and looking at the H4 chart above, we can see that buyers have been banging the price against the 50 SMA (yellow) lately but without any success. This shows uncertainty, as the US economic data is showing mixed numbers, while the UK data has people talking about a possible recession in Britain.

Yesterday we saw the UK Manufacturing Final Purchasing Managers’ Index (PMI) numbers indicating a further slowdown. The data showed a contraction in output, new orders, and employment, with a reading of 46.5 points, marking the lowest level this year. Despite the challenging economic environment, the UK has surpassed expectations in terms of economic growth.

However, a positive aspect of the data is the decline in both input prices and output charges, which could have a favorable impact on the UK’s inflation outlook going forward. The Bank of England (BoE) has expressed optimism about easing inflationary pressures in the second half of 2023, and this could be an early indication that the easing of price pressures is underway.

GBP/USD Live Chart

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Skerdian Meta
Lead Analyst
Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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