The British Pound (GBP) extended its losing streak against the US Dollar (USD) last week, reaching a six-week low near 1.2600. The upcoming UK general elections on July 4th and the US Nonfarm Payrolls data release on July 5th are likely to significantly impact the GBP/USD pair in the coming days.
USD Finds Strength on Hawkish Fed Rhetoric
The US Dollar strengthened last week, fueled by renewed hawkish expectations from the Federal Reserve. Fed policymakers pushed back against interest rate cuts this year, citing signs of resilience in the US economy. This included a surge in the S&P Global preliminary US business activity index to a 26-month high and hawkish comments from Fed officials like Michele Bowman and Lisa Cook.
The renewed hawkish stance boosted US Treasury bond yields, attracting investors towards the Dollar. The market remained divided on the timing of a potential Fed rate cut in September, with CME FedWatch Tool indicating a 57% chance of a 25 basis point reduction.
Yen Weakness and Half-Year-End Flows Support USD
The US Dollar also benefited from the ongoing weakness in the Japanese Yen, which fell to a 38-year low against the USD. Additionally, half-year-end portfolio adjustments likely saw some traders favor the Dollar in anticipation of the Fed's first rate cut this year.
Limited Impact from UK Data, GBP Awaits Election Outcome
The Pound Sterling's recovery attempts were subdued due to a lack of market-moving data from the UK. Despite a revision upward of the UK's first-quarter GDP growth to 0.7%, the Pound remained under pressure due to anxieties surrounding the upcoming general election.
Focus Shifts to Upcoming Events
This week, GBP/USD traders will be closely watching several high-impact events:
- French Parliamentary Elections and China PMI: These events on Monday could influence risk sentiment and impact the pair.
- US ISM Manufacturing PMI and Job Openings: These indicators on Monday will offer insights into the US economy's health.
- Fed Chair Jerome Powell's Speech: Powell's comments at the ECB Forum on Tuesday could provide clues on the Fed's monetary policy stance.
- ADP Employment Change, ISM Services PMI, and FOMC Minutes: These Wednesday releases will shed light on US labor market conditions and the Fed's thinking.
- UK General Elections: The outcome of the elections on Thursday will significantly impact the Pound's medium-term outlook and potentially influence the Bank of England's policy decisions. (US markets are closed on Thursday).
- US Nonfarm Payrolls: This key data release on Friday, along with Average Hourly Earnings and Jobless Claims, will be a major focus for the markets.
GBP/USD Technical Outlook: Bearish Bias with Upside Potential
The GBP/USD pair remains under bearish pressure on the technical charts. A downside break of the rising trendline support and a breach of the key support at 1.2645 (confluence of 50-day and 100-day SMAs) are bearish signals. However, a recent bullish crossover of the 50-day and 100-day SMAs suggests a potential for a bounce.
For the downtrend to resume, a decisive break below the May 15th low of 1.2584 is needed. The 200-day SMA at 1.2564 and the May 9th low of 1.2446 are the next potential downside targets.
On the upside, a weekly close above 1.2645 would signal a potential reversal. The initial upside target would be the 21-day SMA at 1.2715, followed by 1.2800 and the March 8th high of 1.2894.
The direction of the GBP/USD pair will likely hinge on the outcome of the UK elections and the US jobs data. A strong showing by the Labour Party in the elections and positive US jobs data could weaken the Pound further. Conversely, a surprise Conservative victory or a weaker-than-expected US jobs report could trigger a GBP rebound.