The GBP/USD pair crashed to the lowest level since June 2020 as the resilience of the US dollar continued. As a result, the GBP to USD pair declined to a low of 1.2350, which is about 13% below the highest level in 2020. At the same time, the dollar index has risen to $103.70, which was the highest level in about 20 years.
The GBP/USD pair has been in a strong downward trend in the past few days because of the rising US dollar. On Thursday, the decline accelerated when the Bank of England (BOE) delivered its interest rate decision. The bank decided to deliver its fourth straight rate hike even as Andrew Bailey warned that the UK economy could go through a recession soon. The BOE still believes that more rate hikes will be needed.
The pair’s decline also coincides with the overall weakness of other developed country currencies like the euro, Swedish krona, and Japanese yen have all declined. Furthermore, yen has been one of the worst-performing currencies considering that it has dropped to the lowest level in over 20 years. Therefore, with a divergence between the Fed and the Bank of England emerging, there is a likelihood that the GBP to USD will continue retreating.
The BOE has signalled that it could pause while the Federal Reserve still believes that more 0.50% rate hikes will be needed. It will also start implementing its quantitative tightening policies.
The daily chart shows that the GBPUSD pair has been in a strong bearish trend in the past few months. The pair has managed to fall below the 61.8% Fibonacci retracement level. It has also moved below the 25-day and 50-day moving averages, while the Relative Strength Index (RSI) has moved slightly below the 61.8% Fibonacci retracement level.
Therefore, the pair will likely keep falling as bears target the next key support level at 1.2100. In this case, the downward trend will continue as long as the pair is above the important resistance level at 1.2600.
This post was last modified on May 06, 2022, 08:30 BST 08:30