GBP/USD Price Slides to 2-Week Low Ahead of Powell’s Speech

• The GBP/USD price tested 2-week lows under 1.3400 after the Fed meeting minutes. 
• The UK economic data shows resilience, but the inflation concerns remain worrying. 
• All eyes are now on Powell’s speech at the Jackson Hole Symposium

GBP/USD price dipped to a two-week low under 1.3400 on Friday as the Greenback gained strength after the expectations of aggressive Fed rate cuts faded. The GBP/USD pair registered its fifth daily loss, while the US Dollar Index (DXY) hit a ten-day high at 98.80.

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The sentiment is now turning in favor of the USD, with markets repricing Jackson Hole Symposium later today, with Fed Chair Jerome Powell addressing later on. As indicated by the CME FedWatch tool, odds of a September rate cut of 25 bps are now lower at 73%, after 85.4% a week ago. Fed officials other than Kansas City Fed President Jeffrey Schmid have shown cautiousness that inflation is above 3%, well beyond the 2% target.

On the UK front, the initial S&P Global PMI survey data revealed that the services-driven economy remained pugnacious with the Composite PMI surging to 53.0 in August. New business was back in growth in August, offsetting last month’s decline, but layoffs and increasing costs due to the rise in National Insurance rates remain a headwind to the labor market.

The Bank of England (BoE), which has already reduced its interest rates by 25 basis points this month to 4% has a delicate balancing act before it; namely, how to dilute labor demand and at the same time keep inflationary pressures down. Inflation continues to be an issue as the last CPI report indicated headline and core inflation increasing at a faster rate than anticipated, i.e., 3.8% y/y.

Geopolitical risks are also another factor supporting the strength of the USD, as increasing Russian aggressions against Kyiv and the doubtful nature of peace talks have driven demand for safe havens. US labor data was also positive, indicating fresh dollar support, with weekly jobless claims showing an increase to 235K, signaling only minor weakness but not sufficient to tilt Fed pessimism.

Amid the current market sentiment, GBP/USD may continue to weaken with seemingly diverging central bank projections turning in favor of the US Dollar. There is a positive aspect in the increased strength in the UK services sector activity. Still, inflation pressures continue to constrain the scope of any further rate cuts by the BoE, and the more cautious tone taken by the Fed keeps the Greenback in demand.

GBP/USD price technical analysis: Make or break at 1.3400

The GBP/USD daily chart shows a weaker outlook near the confluence of 20- and 100-day MAs. The 1.3400 level could provide initial support, but a flat 200-day MA around 1.3000 could attract the price. Now the key support at 1.3190 can be tested.

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On the flip side, sustaining above the 20-day MA around 1.3410 could gather the buying traction and test 1.3450 ahead of 1.3500. However, the RSI below 50.0 indicates the path of least resistance lies on the downside.

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