GBP/USD: outlook for September 4-8

GBP/USD: outlook for September 4-8

In line with our expectations, GBP/USD tried to recover but remained limited by the key psychological level of 1.3000 on the upside. The pair’s recovery was caused primarily by the weakness of the US dollar and not by the strength of British pound.  

The sterling remains under the negative impact of uncertainty over Britain’s exit from the European Union. The third round of Brexit negotiations started on Monday, but the EU’s chief negotiator said that the progress of the talks was slow.

One of the Bank of England Monetary Policy Committee members Saunders, who has recently voted for a rate hike, warned that unless the regulator didn’t start raising rates soon, it will have to increase rates at a faster pace in future potentially hurting economic growth. However, the prevailing opinion is still that the BoE will keep rates low until the situation with Brexit becomes clearer.

The UK manufacturing PMI hit a 4-month high in August. In the coming days, the nation will release construction and services PMIs. On addition, the BoE Governor Mark Carney will speak at the House of Commons in line with Inflation Report hearings on Tuesday. His comments may be market movers. At the end of the week, on Friday, Britain will release manufacturing production figures.

Technically GBP/USD rebounded from support line connecting April, June and September lows. This line is currently providing support around 1.2800. On H4 we see something like an inverted Head & Shoulders. A break above 1.3000 will allow the pound to strengthen to 1.3100 and 1.3160. Below 1.2800 the pound will get vulnerable for a decline to 1.2750 and 1.2660 (200-day MA).

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