GBP/USD touched a two-week low near 1.3485 on Thursday before attempting a rebound, as a fresh Middle East escalation and its threat of an energy shock pushed investors away from riskier assets. Fiscal reassurance from Prime Minister Andy Burnham offered the pound only limited support, while a more hawkish Federal Reserve outlook kept the dollar bid.
GBP/USD touched a two-week low of approximately 1.3485 on Thursday before attempting to rebound. The move came as investors moved away from riskier assets on concerns about the economic impact of an energy shock tied to a fresh escalation in the Middle East.
Burnham reaffirms fiscal discipline
The market is also digesting Prime Minister Andy Burnham's address to the House of Commons, in which he reaffirmed the government's commitment to fiscal discipline and reducing the debt burden. Burnham noted that bringing forward the budget submission date should help reduce speculation about future fiscal measures. Chancellor John Healy's first major statement on the government's programme is expected as early as next week.
Rate expectations diverge
Money markets continue to price in a 25-basis-point Bank of England rate hike before year-end, a view reinforced by a recent acceleration in UK retail price inflation. Yet additional pressure on GBP/USD is coming from a more hawkish Federal Reserve stance. Following Kevin Warsh's hawkish comments and rising oil prices, the probability of a US rate hike in September is now estimated at approximately 66%, supporting the dollar.
Technicals point to further downside
On the H4 chart, the pair has nearly reached the local downside target at 1.3474 and is forming a narrow consolidation range extending up to 1.3510. A downside breakout would open the way for a further decline toward 1.3450, while an upside breakout could lead to a correction toward 1.3520 before the downtrend resumes. The MACD signal line sits below zero and is trending downward, supporting continued downside momentum.
The H1 chart shows a tight consolidation range around 1.3495, extending between 1.3478 and 1.3518. A move lower toward 1.3470 is expected, and a break below that level would open the way for a further decline to 1.3450. The Stochastic oscillator's signal line sits below 50 and is trending toward 20, pointing to continued short-term downside pressure.
Source: ActionForex
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