**GBP/USD Falls to New Seven-Month Lows as Traders Await BoE Decision**
*Based on original analysis by Kenny Fisher, MarketPulse*
The British pound is under significant pressure as it slides to new lows not seen in seven months, dropping below the key 1.2400 level against the US dollar. This movement comes in anticipation of the upcoming Bank of England (BoE) interest rate decision, with traders and investors keenly focused on the central bank’s response to mixed economic signals and persistent inflation risks.
**Overview: Recent Downturn for Sterling**
– GBP/USD, also referred to as “Cable,” has sharply fallen in the past week, touching levels last seen in March.
– The decline was accelerated by a combination of disappointing UK economic data and the dollar’s resurgence due to expectations of higher-for-longer rates by the US Federal Reserve.
– Market participants are now turning their attention to the BoE’s policy response as the central bank navigates stagflation-like conditions: weak growth paired with uncomfortably high inflation.
**Key Drivers Behind the Pound’s Decline**
1. **Stronger US Dollar:**
– Recent resilient economic data from the United States, particularly regarding labor markets and consumer spending, have encouraged investors to believe that the Federal Reserve may continue its policy of maintaining higher interest rates for longer.
– Higher yields on US Treasury bonds have also made dollar-denominated assets more attractive, adding to global demand for the greenback.
– The dollar index, which measures the dollar’s value against a range of major currencies, has surged to its highest since November 2022.
2. **Weak UK Economic Data:**
– The latest UK wage growth figures and inflation readings have signaled a slowdown in key sectors.
– August’s monthly GDP data revealed a contraction, raising alarms about the health of the British economy.
– Retail sales have shown persistent weakness, and business sentiment surveys, such as the PMI, point to stagnant or contracting activity in both manufacturing and services.
3. **Interest Rate Uncertainty and Central Bank Divergence:**
– The Bank of England has maintained a cautious tone even as headline inflation remains above target.
– Expectations have shifted, with market participants now divided about whether the BoE will continue to raise rates or opt for a pause given the sluggish economic backdrop.
– This stands in stark contrast to the Federal Reserve, which, despite some signs of slowing, still leans hawkish relative to the BoE.
**Market Reaction and Technical Analysis**
– The pound has seen increased volatility, with speculative selling and reduced demand from international investors.
– Technical analysis shows the break below 1.2400 as significant, as many traders viewed this as a major support level.
– With the move now established, analysts are watching for further downside towards 1.2300 and even 1.2200 if selling pressure intensifies.
– Resistance, by contrast, now sits at the previous 1
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