GBP to USD: Emerging A Bearish Tone

The GBP/USD pair represents the value of the British pound (GBP) in terms of the US dollar (USD).

The GBP/USD pair is often considered to be one of the most important currency pairs in the forex market due to the size and liquidity of the two economies, the United Kingdom and the United States. Economic and political events, as well as monetary policy decisions by the Bank of England and the Federal Reserve, can have a significant impact on the value of the GBP/USD pair. Understanding the factors that influence the GBP/USD exchange rate is crucial for successful forex trading.

Recent Development in GBPUSD

In the United States of America, inflation has recently broken the 40-year record. In multiple steps, the Federal Reserve (Fed) increased interest rates to combat inflation. However, the Consumer Price Index (CPI) values fell to 6.4% after the increment of interest rates above 4%. In 2023, the Federal Reserve is anticipated to raise interest rates further, which will increase the likelihood of a recession.

Conversely, the unemployment rate is also extremely low. A lower unemployment rate can also increase inflation, as it typically indicates a robust economy with a high demand for goods and services. As more individuals gain employment and income, they tend to spend more, resulting in greater demand for goods and services. This increased demand can lead to price increases and a rise in inflation. In addition, when unemployment is low, workers have more leverage to negotiate higher wages, which can also contribute to higher prices as companies pass on the increased labour costs to consumers.

The environment of high inflation drove the US dollar index to significantly higher levels, achieving its long-term objective. A decline from the long-term objective is bearish for the US dollar index and suggests further weakness. As shown in the chart below, the US dollar index is currently bouncing off the strong support provided by the ascending broadening wedge. A short-term increase in the US dollar index is viewed as an opportunity to sell GBP/USD.

Conclusion

The US dollar is rebounding from ascending broadening wedge patterns, so GBPUSD is likely to decline based on the discussion above. The formation of a double top in the GBP/USD is a highly bearish pattern, and any break below 1.19 will initiate a downtrend. Nevertheless, the breakdown is probable. Traders will attempt to sell rallies in an effort to reach the 1.18 region.