The GBP/USD pair tumbled on Friday, losing more than 3% on the day, making this its worst weekly decline since 2020.
The pound weakened across the board and fell to its lowest level since 1985 against the greenback at 1.0839, weighed by a widening Fed-BoE rate differential following both banks' meetings this week.
Additionally, the U.K. announced on Friday the most significant tax cut in over 50 years, while U.K. preliminary PMI figures showed disappointing results, contrasting with U.S. PMIs, which came in better than expected.
At the time of writing, the pair trades at the 1.0870 area, losing almost 400 pips, or 3.4%, on the day.
U.K. Finance Minister Kwasi Kwarteng announced a radical economic plan to boost growth, which included massive fiscal cuts and investment incentives for businesses estimated to total £45 billion by 2026-27.
Investors seemed spooked by the scale of the fiscal giveaway as it will be financed with debt. As a reaction, investors ditched U.K. bonds, sending the United Kingdom 10-Year yield on the Gilt up by more than 9% to its highest level since 2011, around 3.84%.
The PMIs confirmed more bad news for the British economy. The manufacturing and services sectors contracted, as their indexes came in at 48.5 and 49.2, with the former resulting worse than expected but the latter beating the market's consensus.
In contrast, the U.S. services sector PMI showed a contraction. Still, it came in better than the consensus at 49.3 vs. 44.7 expected, while the manufacturing sector expanded, with the PMI hitting 51.8, above the forecast of 51.1.
The greenback, measured by the DXY index, received a fresh boost from data and rose to a cycle high of 113.23, last visited in May 2002.
GBP/USD – Technical View
According to the weekly chart, the technical outlook for Cable remains strongly bearish as this week's candle will close with the steepest loss YTD of around 4.8%.
The short-term bias is also bearish, according to indicators on the daily chart. However, oversold conditions in the RSI could indicate a temporal bounce or at least a pause of losses.
On the downside, further support levels are seen at the new low of 1.0839, followed by the 1.0800 and the 1.0700 zones. A break below the latter could expose the all-time low of 1.0520 hit on January 1985.
On the other hand, the bulls must retake the 1.1000 area to alleviate the immediate pressure.