US Stock closed lower, concerning an overbought condition. Moreover, the weaker sentiment from China's industrial profit report could indicate deflationary pressure. Following the sentiment, the US Dollar grabbed investors' interest, eliminating early bullish gains for GBP on the intraday chart.
Hawkish BoE vs. Risk-off Sentiment
The latest report from the US Census Bureau indicates an intense decline in new home sales for October, which can be attributed to elevated mortgage rates. Moreover, the Fed's tightening policy by 525 basis points since March 2022 is cited as a contributing factor. Year-on-year purchases plummeted by -5.6%, falling short of estimates. Surprisingly, this data did not significantly affect the GBPUSD, which extends the gain with a risk-off sentiment.
Consequently, the US Dollar Index (DXY) recovered slightly against the basket of currencies, reaching 103.44.
On the other hand, Bank of England's Governor Andrew Bailey accepts the challenge of reaching inflation at the 2% target, mentioning the recent drop from 6.7% to 4.6% due to lower energy prices. Bailey also emphasizes reducing inflation despite the impact on households, as higher prices would worsen economic conditions.
Currently, Money market futures indicate a possibility of a 25 bps rate cut by the BoE in September of the following year. In contrast, traders have fully priced in approximately 85 basis points of cuts by the Fed in the coming year.
GBPUSD Technical Analysis
The GBP/USD pair shows a neutral momentum from the technical perspective, while the broader market remains bullish. The dynamic 20 EMA is below the 1.2448 static support with a bullish slope. Moreover, the Relative Strength Index (RSI) shows a bullish continuation as the current reading is just below the 70.00 line
A potential shift to a negative trajectory and a daily close below the 1.2600 psychological level could trigger a downward movement toward the 1.2448 support. Above this level, the Initial support levels include the November 24 daily low of 1.25223, followed by 1.2500.
On the positive side, further upside is supported by the rising MA, which needs a stable price above the 1.2600 level before approaching the 1.2746 resistance level.
