The Pound Sterling (GBP) extended its downtrend and reached seven-month lows near 1.3000 against the US Dollar (USD), before GBP/USD buyers quickly jumped in and recovered some ground.
### Pound Sterling Rebounded; Not Out of the Woods Yet
Safe-haven flows returned with a bang, acting as a strong headwind to the risk-sensitive Pound Sterling while boosting the US Dollar to its highest in five months against its six major currency rivals.
A “sell everything” theme gripped the market as traders witnessed a wave of exhaustion following the artificial intelligence (AI)-driven record rally in global stocks. US tech stocks tumbled, dragging down major indices, with investors selling gold to cover their losses in equity markets.
Investors grew concerned over inflated technology stock valuations, particularly in the AI space, fueling a long-due correction in global indices.
That being said, the USD also found fresh support from reduced expectations that the US Federal Reserve (Fed) will deliver another interest rate cut in December. The December Fed rate cut bets were slashed after strong US private sector employment and services activity data.
Data published by ADP showed that US private payrolls increased by 42,000 jobs in October, exceeding expectations of a 25,000 gain. Meanwhile, the ISM Services PMI rose more than expected to 52.4 last month, driven by a solid jump in new orders.
This broad USD strength pushed the GBP/USD pair to challenge the 1.3000 psychological level before it staged a decent comeback in the latter part of the week.
### Cable’s Turnaround Driven by USD Pullback and US Treasury Yields
The rebound in GBP/USD was mainly driven by a sharp pullback in the USD across the board and US Treasury bond yields, following Thursday’s private labor data and resurging concerns over a protracted government shutdown.
The executive outplacement firm Challenger, Gray & Christmas reported on Thursday that corporations announced a 183.1% monthly surge in layoffs — the worst October in over two decades, according to Reuters.
The latest jobs data refueled concerns about weakening US labor market conditions, slightly boosting the odds of a Fed rate cut next month to 69%, up from 62% following the ADP Employment Change data release.
### Bank of England Holds Steady Despite GBP/USD Recovery
The GBP/USD recovery was unfazed by the Bank of England’s (BoE) dovish hold decision. The members of the BoE Monetary Policy Committee (MPC) voted 5-4 to maintain the key Bank Rate at 4%, a narrower split than expected.
The BoE emphasized that future rate cuts will depend on how the inflation outlook evolves. The Monetary Policy Statement (MPS) noted, “If progress on disinflation continues, Bank Rate is likely to continue on a gradual downward path.”
Heading into the weekend, the USD came under renewed selling pressure, helping GBP/USD push higher.
The monthly report published by the University of Michigan showed the Consumer Sentiment Index dropped to 50.3 in November from 53.6 in October.
### Week Ahead: High-Impact UK Data to Hog the Limelight
Amid a holiday-shortened week, the data drought from the United States is likely to continue as there appears to be no end in sight for the government shutdown — the longest in American history.
This will put the focus back on some private-sector statistics and speeches from Fed officials.
If government funding is restored, the delayed US Nonfarm Payrolls and Jobless Claims reports will be eagerly awaited, along with the Consumer Price Index (CPI), Producer Price Index (PPI), and Retail Sales data for October.
From the United Kingdom’s economic calendar, employment data released on Tuesday could provide some momentum for Pound Sterling traders.
On Wednesday, BoE Chief Economist Huw Pill is scheduled to speak at a panel discussion titled “An Assessment of the BoE’s Reaction to Covid-19” at the Institute of International Monetary Research Conference, hosted by the University of Buckingham.
Thursday will feature the monthly and preliminary readings of the British third-quarter Gross Domestic Product (GDP) data alongside industrial figures.
### GBP/USD: Technical Outlook
On the daily chart, GBP/USD is struggling to break above the previous strong support-turned-resistance at 1.3142 during its recovery attempt.
The 14-day Relative Strength Index (RSI) has turned lower and remains below the midline, currently near 36, suggesting more downside potential.
Adding to the bearish outlook, the 21-day Simple Moving Average (SMA) is poised to close the week below the 200-day SMA, which would confirm a Bear Cross — a strong technical sell signal.
These indicators point to further pressure on the GBP/USD pair heading into the new week.
If the pair manages to scale the 1.3142 resistance decisively, the next powerful resistance level aligns around the 1.3265 region, where the August 4 low and both the 21-day and 200-day SMAs converge.
A sustained move above that zone could unleash additional recovery toward the 50-day SMA barrier at 1.3393.
Conversely, if downside momentum returns, a test of the multi-month troughs at 1.3010 is likely.
Selling pressure will intensify below this level, opening the door toward the April 11 low of 1.2967. The last line of defense for Pound Sterling buyers can be found around the 1.2850 psychological level.
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Stay tuned for the upcoming data releases and market developments to gauge the next moves in the GBP/USD pair.
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