GBP to USD Forecast: Turbulence Ahead for Sterling Amid PMI and Powell Revelations

Highlights

• GBP/USD ended last week down 0.27% to $1.22020.
• Today, the UK Manufacturing PMI may foretell a prolonged recession outlook.
• Fed Chair Powell’s insights post-PMI release are set to influence dollar sentiments.

Overview of the Friday Session

On Friday, the GBP/USD pair rose by 0.04%. Following a 0.51% gain on Thursday, the GBP/USD pair ended the week down 0.27% to $1.22020. The GBP/USD pair fell to a low of $1.21800 before reaching a high of $1.22716.

UK Manufacturing PMI in Focus

Finalized manufacturing PMI numbers for September will garner investor interest today. According to prelim figures, the manufacturing PMI increased from 43.0 to 44.2. A downward revision to the prelim PMI would test buyer appetite for the Pound.

The UK manufacturing sector contributes less than 20% to the UK economy. However, contractions across the manufacturing will likely signal a deeper UK recession.

Uncertainty about the UK economy may continue to limit the upside for the GBP/USD pair. The shift in sentiment toward the Bank of England’s monetary policy intentions also remains a headwind.

Before the PMI numbers, the UK house prices will also draw interest. A deteriorating housing sector would impact consumer confidence and spending. UK private consumption contributes 60% to the UK GDP. A negative outlook would raise recessionary fears and pressure the Pound.

US ISM Manufacturing PMI and Fed Chair Powell in Focus

US economic indicators and Fed Chair Powell also need consideration today. The ISM Manufacturing PMI will be in focus before a Fed Chair Powell speech.

Economists forecast the ISM Manufacturing PMI to increase from 47.6 to 47.7 in September. An unexpected fall in the headline PMI and worse-than-expected employment and prices PMIs may reignite fears of a hard landing.

The US manufacturing sector contributes less than 30% to the US economy. Nonetheless, a deteriorating private sector outlook could influence investor sentiment toward the US dollar.

After the recent inflation numbers, Fed Chair Powell may influence sentiment toward the Fed policy goals. Speaking after the release of the PMI numbers, views on the economic outlook, inflation, and interest rates will move the dial.

Short-Term Forecast

Economic and monetary policy divergence continues to favor the US dollar. However, weaker-than-expected US service sector PMIs and a disappointing US jobs report would shift sentiment toward Fed interest rate goals this week.

GBP to USD Price Action

Daily Chart

The GBP/USD pair remained below the 50-day and 200-day EMAs, affirming bearish price signals. A GBP/USD break above the $1.22150 resistance level would support a move toward the $1.24410 resistance level.

Weaker-than-expected US economic indicators and a dovish Fed Chair would fuel a GBP/USD breakout.

However, a fall below $1.2150 would bring sub-$1.2050 and the $1.19055 support level into play.

The 14-period daily RSI reading of 28.03 shows the GBP/USD in oversold territory.

4-Hourly Chart

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

However, failure to move through the $1.22150 resistance level would support a GBP fall below $1.2150 to target $1.20.

With a 45.44 reading on the 14-period 4-hourly RSI, the GBP/USD could fall to $1.21 before reaching oversold conditions.