03.01.2024 - Pound Sterling drops vertically as risk-on rally cools
The Pound Sterling (GBP) searches for a potential cushion after Tuesday’s intense breakdown. The GBP/USD pair was beaten down after investors reconsidered the positive sentiment underpinning the rally in risk-sensitive assets. In addition to that, deepening recession fears and a vulnerable manufacturing sector in the United Kingdom economy have dampened appeal for the Pound Sterling.
A major factor of the outperformance by the Pound Sterling against the US Dollar was the expectation that the Federal Reserve (Fed) would start reducing interest rates earlier than the Bank of England (BoE). However, the UK’s gloomy outlook, due to deepening business pessimism amid escalating cost-of-living crisis, may force BoE policymakers to reconsider their stance of keeping interest rates elevated for a longer period. Pound Sterling discovers nominal buying interest after a sharp decline to near 1.2600. The GBP/USD pair fell vertically after failing to sustain above the round-level resistance of 1.2800. The Cable has formed a Double Top chart pattern on an intraday time frame and a breakdown below the immediate support of 1.2600 will result in a fresh downside. On a daily time frame, the GBP/USD pair has dropped below the 20-period Exponential Moving Average (EMA), which indicates that the near-term trend is not bullish anymore.