GBP/USD downtrend deepens towards 1.2340 amid rising USD demand.

30 may 2023

The GBP/USD pair is exhibiting a bearish bias, as it heads southward towards the 1.2300 level during the early European morning session, erasing gains made during the Asian trading hours, which saw the pair reach 1.2380. The resurgence of concerns regarding the approval of the US debt deal and heightened expectations of a June interest rate hike by the Federal Reserve are bolstering demand for the US Dollar. The start of the new week has been relatively quiet for GBP/USD due to the Spring Bank Holiday in the UK and the Memorial Day holiday in the US, leading to low trading volumes.

Technical analysis reveals the presence of a bearish triangle pattern, indicating the potential for a new downward move that could extend towards the 1.272 Fibonacci extension level and potentially reach the 1.618 level.

Last week, hawkish expectations regarding the Federal Reserve provided a boost to the US Dollar, causing GBP/USD to decline by approximately 100 pips.

Before the weekend, the US Bureau of Economic Analysis reported that the Core Personal Consumption Expenditures (PCE) Price Index, which is the Fed's preferred gauge of inflation, rose slightly to 4.7% on a yearly basis in April, surpassing market expectations of 4.6%. Furthermore, additional details from the report indicated that consumer activity remained robust, with personal spending increasing by 0.8% on a monthly basis.

According to the CME Group FedWatch Tool, the likelihood of the Fed maintaining its current policy rate in June has dropped below 40%, compared to nearly 75% a week ago.

Meanwhile, over the weekend, US President Joe Biden and Republican House Speaker Kevin McCarthy reached an agreement to suspend the debt limit. If this development leads to a risk-on sentiment when bond markets and US stock index futures resume trading early Tuesday, the US Dollar could face difficulties in finding demand, potentially allowing GBP/USD to recover some ground.