GBP/USD Hits 100-Day Simple Moving Average, Near Lowest Level Since Mid-May Bears Still Dominate

GBP/USD opened weak on Monday and remains near the lowest level since mid-May hit on Friday. Currently trading around 1.2635, bears are looking for a sustained break below the 100-day simple moving average before taking a position on the recent move down from multi-month highs.

The Bank of England (BOE) continued to weigh on the British pound (GBP) last week by maintaining a dovish stance, which boosted bets on a rate cut at the BoE’s August monetary policy meeting. In addition, the UK’s flash Purchasing Managers’ Index released on Friday showed that private sector business activity expanded at the slowest pace since November last year in June. This, coupled with some follow-through buying in the US dollar, became another factor affecting the trend of GBP/USD.

Against the backdrop of the Federal Reserve’s (Fed) unexpected hawkish comments earlier this month, predicting only one rate cut this year, data released on Friday showed that US business activity grew at a 26-month high in June. Apart from this, cautious market sentiment lifted the safe-haven dollar to its highest level since May 9 and further increased GBP/USD’s downside bias, although the lack of follow-through selling requires bears to tread carefully.

Market participants are still pricing in two rate cuts from the Federal Reserve in 2024 amid signs of a retreat in US inflationary pressures. This could curb further dollar appreciation and help limit GBP/USD’s downside. Traders may also avoid making aggressive directional bets ahead of the UK general election on July 4 and in the absence of any market-moving macroeconomic data releases on Monday.

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