GBPUSD Correction Looms as Breakout Momentum Fades
The GBPUSD exchange rate has failed to extend a breakout and could continue its correction.
GBPUSD: Daily Chart
GBPUSD traded above the 1.28 level but has slumped below the previous high of 1.2680. The pair may now test the moving average with a further breakdown targeting 1.23.
The next data from the British economy will be a GDP reading on Friday. However, that is a final reading and may not diverge from the 0.2% figure expected by analysts for Q1.
More important data will be the US PCE price index figures, which will be released later in the day. Inflation has continued to fall after the Federal Reserve’s interest rate hike policy, and analysts will get another look at domestic price action. The Core PCE index has remained between 4.6% and 4.8% since November.
The final data point ahead of the weekend will be the Michigan Consumer Sentiment Index, with a rise to 63.9 expected from 59.2. US consumers are becoming more upbeat after the debt ceiling issue was resolved and inflation has continued to drop.
Investment bank Morgan Stanley now sees the Federal Reserve raising rates again in July after Fed Chair Jerome Powell’s speech. Powell said the bank will “be restrictive as long as we need to be” to get inflation back to its 2% target. That is not expected to happen before 2025, according to Powell.
Central Bank Actions Drive Direction
The latest manufacturing data from the UK has added to the case for further Bank of England interest rate hikes, with consumer price inflation above target. Manufacturers continued to feel the pain as production dropped for the eleventh time in the past 12 months, according to the S&P Global/CIPS PMI for June.
However, business activity in the UK’s private sector increased for a fifth consecutive month in June. “June’s flash PMI survey indicates that the UK economy has lost momentum again after a brief growth spurt in the spring and looks set to weaken further in the months ahead,” said Chris Williamson at S&P Global Market Intelligence.
“The survey’s price gauges point to consumer price inflation remaining well above the Bank of England’s target into 2024, which will add to the case for further interest rate hikes,” added Williamson.
