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GBP/USD - Can anybody stop the US Dollar?
06.07.2022

The GBP/USD is being influenced by developments both in the UK and US. The exchange rate has witnessed significant declines and surpassed the previous support level which has held the price above since the COVID-19 outbreak in February 2020.

The price of the GBP/USD today has declined by 1.77% over the past 24 hours but has also declined for 2 consecutive weeks. Currently, the price is moving within the fourth price swing which has crossed onto a lower low and has formed a lower high. Additionally, technical indicators show a potential continuation of the downward trend. However, certain oscillators such as the RSI also indicate a potential retracement in the near future.

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Starting with the UK and the British Pound, we can see that the price is being pressured by economic, political and confidence factors. Firstly, the Bank of England recently advised that their analysis confirms that the pressure on households has increased and shows signs of increasing due to the worsening global conditions. Economists are mainly concerned with the inflation rate, specifically price increases in food and energy products.

The Bank of England also advised that the lack of investor and business confidence is also a significant issue noting the need to build a buffer capital to provide liquidity. The UK also released some minor economic figures including the Service PMI which was 54.3 points in June, up from 53.4 points last month, while the composite index rose to 53.7 points from 53.1 points earlier.

The US Dollar on other hand is also a major driving factor causing the exchange rate to decline. The US Dollar is increasing in value across most currencies and the US Dollar Index has increased in value reaching 106.56 which is the highest the index has reached since January 2002.

One of the main driving factors is the increasing interest rates which are also predicted to increase in magnitude and frequency. Currently, the market is waiting for the release of the Federal Reserve Meeting Minutes which will confirm what had been said in the latest discussions between the US’s top bankers. Mainly traders are eager to see if the report will indicate whether the Fed will increase interest rates by 50 or 75 basis points. According to most economists, the size of the hike will most likely depend on this month's inflation figures.

Chief Investment Manager, Mr David Riley, has advised that the Federal Reserve is likely to keep increasing interest rates until the Federal Fund Rate increases to at least 4%. Many other economists have also advised that the interest rate is likely to continue increasing to between 3.5% and 4.2%. This has significantly supported the price of the US Dollar in addition to safe-haven elements associated with the currency.

Traders over the remainder of the US trading session will mainly be concentrating on the Fed Meeting Minutes, Jolts Job Opening and the Latest PMI figure. Within regards to the UK, investors will mainly be concentrating on the political side as markets look to get further clarity on the Prime Minister's position.

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