GBP to USD Forecast: Deteriorating Macro View Dims Pound Prospects

Highlights

• GBP/USD experienced a significant 0.95% dip on Monday, erasing Friday’s modest gain, settling at $1.20865.
• GBP/USD faces headwinds from a shaky UK macroeconomic stance and Bank of England policies.
• Investors eye the US JOLTs Job Openings Report, with potential for hawkish Fed sentiment.

Overview of the Monday Session

The GBP/USD slid by 0.95% on Monday. Reversing a 0.04% gain from Friday, the GBP/USD pair ended the session at $1.20865. The GBP/USD pair rose to a high of $1.22198 before sliding to a low of $1.20861.

Headwinds: UK Macroeconomic Outlook and Bank of England Monetary Policy

The GBP/USD remained under pressure this morning. A deteriorating macroeconomic outlook continues to leave the Pound on the defensive.

A continued contraction across the manufacturing sector in September contributed to the losses on Monday. While the UK manufacturing sector contributes less than 20% to the UK economy, the trend of weak economic indicators weighed on buyer appetite.

Expectations of the Bank of England hitting the brakes on interest rate hikes add to the bearish outlook for the GBP/USD. The deteriorating outlook will likely force the Bank of England to leave interest rates unchanged.

On Wednesday, service sector PMI numbers may add to the negative sentiment toward the UK economy. According to prelim figures, the UK Services PMI fell from 49.5 to 47.2 in September.

US Labor Market and the Fed in Focus

Later today, the US JOLTs Job Openings Report will garner investor interest. An unexpected rise in job openings may lead to increased hawkish sentiment from the Fed.

Economists forecast job openings to decline from 8.827 million to 8.800 million in August.

However, investors should also consider quit rates. A higher quit rate could reflect work confidence in the US labor market. Workers are more likely to leave their jobs when jobs are more plentiful.

Beyond the numbers, FOMC member commentary will also influence buyer appetite. FOMC member Raphael Bostic is on the calendar to speak today. Hawkish comments will likely pressure the GBP/USD.

Short-Term Forecast

Monetary policy divergence remains firmly tilted in favor of the US dollar. A tighter US labor market environment could intensify the selling pressure of the Pound. The weakening outlook for the UK economy will also continue to pose near-term headwinds for the GBP/USD.

GBP to USD Price Action

Daily Chart

The GBP/USD pair sat below the 50-day and 200-day EMAs, affirming bearish price signals. Significantly, the 50-day EMA narrowed to the 200-day EMA. A bearish cross of the 50-day EMA through the 200-day EMA would fuel selling pressure.

An unexpected rise in US job openings and hawkish Fed speeches would bring the $1.19055 support level into play.

However, weaker-than-expected job openings and a slide in quit rates would support a GBP/USD move toward the $1.22150 resistance level.

The 14-period daily RSI reading of 22.49 shows the GBP/USD deep in oversold territory.

4-Hourly Chart

The GBP/USD sits below the 50-day and 200-day EMAs, reaffirming bearish price signals. A GBP/USD return to $1.21 would support a move toward the 50-day EMA and the $1.22150 resistance level.

However, a fall below $1.20500 would give the bears a run at the $1.19055 support level.

With a 25.84 reading on the 14-period 4-hourly RSI, the GBP/USD sits deep in oversold territory.