The Pound sterling /US dollar pair recovered after suffering heavy losses the previous day, falling by 0.71%. The move came after sharp comments from US President-elect Donald Trump.
who threatened to impose 100% tariffs on the BRICS countries if they did not stop looking for an alternative to the US dollar. The US dollar was also supported by the release of strong US PMI data. However, comments from some Federal Reserve members, led by Governor Christopher Waller.
were the main reason behind the US dollar’s rise on Monday.
Waller indicated his inclination to support a rate cut at the December meeting.
boosting expectations for a 25-basis point rate cut.
with the probability of a cut rising to 76% (from the previous 60s). Low interest rates are usually negative for currencies as they limit foreign capital inflows.
In contrast, the pound struggled to benefit from the weakness of the US dollar due to disappointing economic data. The final UK PMI data for November showed a sharp decline in the manufacturing sector.
with the index falling to a nine-month low of 48.0.
down from 49.9 in October and below the initial forecast of 48.6.
Retail sales data for November from the British Retail Consortium (BRC) also surprised markets with an unexpected 3.4% decline, after a slight 0.3% rise in October.
suggesting a slowdown in consumer spending. The data supports expectations that the Bank of England may be forced to cut interest rates at its next meeting in December. As a result, the recovery in sterling against the US dollar looks set to be limited for now.
Pound sterling hit by French political crisis
The pound has been hit by recent political events in France.
with UK government bonds (Gilts) falling after news that French Prime Minister Michel Barnier’s minority government may face a vote of no confidence from opposition parties over the budget bill.
“The news has helped widen the spread between UK and German 10-year government bond yields to its highest since Liz Truss became prime minister.
closing at 221.5 basis points yesterday,” Jim Reid, head of macroeconomic research at Deutsche Bank, said in a note Tuesday morning.
Reid added that the developments point to a possible no-confidence vote this week, and possibly as soon as Wednesday.
which could lead to the resignation of the French government. Reid noted that the political crisis could lead to the formation of an interim government in France.
noting that new elections will not be held until next summer.
according to the French constitution, which imposes a one-year waiting period.
French President Emmanuel Macron will have to propose a new prime minister.
and Reid believes Barnier could be nominated again for the position. However, he added that the political situation in the National Assembly could make it difficult to stabilize the new French government.
On the budget front, French lawmakers are expected to approve a law that would allow the government to use existing taxes for decree spending.
but this would only apply to expenditures already included in the 2024 budget without adding new ones. These developments continue to weigh on the pound, with political uncertainty in France having a tangible impact on financial markets.
Pound sterling and USD Market Analysis and Impact of Upcoming Data
In terms of the factors affecting the GBP/USD market.
traders are awaiting the US JOLTS (Job Openings) data due on Tuesday in the coming days. This data is expected to help guide expectations regarding the future of the US economy and the labor market in general. In addition, traders will focus on the statements of some Federal Reserve officials whose schedule this week includes San Francisco Fed President Mary Daly, Fed Governor Adriana Kogler.
and Chicago Fed President Austan Goolsbee.
The statements of these officials may provide additional clues about the future monetary policy directions of the US central bank.
which will have significant impacts on the movement of the US dollar and the British pound in global markets.
Technical Analysis: Recovery after Correction
Looking at the technical analysis of the GBP/USD pair.
the pair shows a significant improvement on Tuesday to reach the 1.2680 level after the sharp correction it witnessed on Monday and is currently trading at 1.2653. The data shows that Monday’s sell-off can be considered a triple correction.
meaning that the pair’s short-term uptrend from the November 22 lows remains intact, albeit with relative weakness in momentum.
In accordance with the basic tenets of technical analysis.
which state that “the trend is your friend,” current signals suggest that the odds remain in favor of a continuation of the uptrend. However, we should take into account that the MACD (Moving Average Convergence Divergence) indicator has recently crossed below its red signal line.
hinting at further weakness in the near future.
While the short-term trend remains bullish, the medium-term trend remains bearish.
threatening negative volatility if this trend takes hold of the market. On the other hand, the long-term trend still suggests that the upward momentum is likely to continue.
complicating the future outlook.
