The British pound to U.S. dollar exchange rate has fallen for a third day in succession. On Thursday too, it goes even further down. This downward correction goes back from the most recent peak of 1.3565-1.3570. Yet that level hasn’t been seen since September 18. The pair during the first half of the European session fell to a three-day low and hovered around 1.3445-1.3440. This second drop indicates that it is still retreating from where it has made the previous advances.
The GBP/USD pair is in free fall, but it’s not in free fall. That stability has resulted from the absence of big approaching fundamental undercurrents to drag it lower. Even as the trend has been overwhelmingly negative, the pair’s downside appears to be limited by dovish Fed-related expectations for the US central bank. These expectations have largely prevented the US dollar from catching much momentum, therefore providing some measure of buoyancy to the British pound.
Earlier in the week, long GBP/USD was a surprise blockbuster. This increase came after the US services sector delivered some surprisingly good news. This has not proved enough to keep its great upward course. The 23.6% Fibonacci retracement level at 1.3438 now provides initial support for the pair. If the price fails to hold above this level, it might accelerate the downside. This decline could drive it down to the next support area at 1.3362 which converges with the 38.2% retracement.
The 200-period Simple Moving Average (SMA) just above at 1.3355 provides a near term ceiling for the GBP/USD. This area could serve as support to avoid further declines through the currency pair. If the pair manages to hold above the 1.3438 support level, it could find some stability here. This would be a welcome reprieve from the prevailing gloomy mood.
Further, currency markets participants are closely tuned into global geopolitical tensions as potential catalysts for major shifts in currency market trends. The current Russia-Ukraine conflict, instability in Iran and the recent situation in Gaza are all adding to uncertainty in the global market. Thus, safe-haven US dollar is up more strongly against the battered British pound. In fact, US President Donald Trump just dropped a similar recent hint when it comes to possible military action against Colombia and Mexico. Such a move would only deepen market expectations and pressure the GBP/USD exchange rate.
The upcoming release of the US Nonfarm Payrolls (NFP) report on Friday is expected to draw significant attention from traders. The upcoming NFP data is set to provide important insight into the state of the US labor market. This data will likely inform future monetary policy decisions from the Fed’s purview as well. The market is obviously tuned in to this release. It would have profound implications for both the USD and GBP.
Just as the fundamental outlook, technical indicators are showing a mixed picture when it comes to the GBP/USD pair. The daily Moving Average Convergence Divergence (MACD) histogram has crossed a hair below zero. The movement back above the zero-line indicates a potential change of direction in momentum. Traders will be watching closely to see if this indicator signals further declines or if a reversal is on the horizon.