GBP/USD Forecast as UK and US Economic Divergence Widens
The GBP/USD exchange rate continued crashing on Friday as the divergence between the US and the UK economies widened. The pair dropped to a low of 1.1528, which was the lowest level since March 2020. It has crashed by about 20% from the highest point in 2021.
UK and US economies divergence
The GBP to USD price has dropped in the past three consecutive weeks as investors worry about the UK economy. It has also slipped in the past six straight days.
The sell-off continued on Friday when the US published strong economic numbers. Data published this week showed that consumer confidence jumped sharply in August as inflation started to drop.
And on Friday, data published by the Bureau of Labor Statistics (BLS) showed that the economy continued adding jobs in August. Non-farm payrolls (NFP) rose by 315k after adding 516k in the previous month. This increase was better than the median estimate of 300k.
In the same period, the unemployment rate rose from 3.5% to 3.7%. Average hourly earnings rose by 5.2%, which was lower than the median estimate of 5.3%.
Therefore, there are signs that the gap between the two countries is widening. For example, recent data showed that the country’s inflation rose to 9.1% in July. And now analysts expect that the country’s inflation will hit over 18% in January of this year.
As such, the country is expected to sink into a recession in the coming months. At the same time, the Bank of England (BoE) is expected to struggle hiking interest rates during a recession.
The GBP to USD exchange rate has been in a strong bearish trend in the past few months. It managed to move below the important support at 1.1760. It has also moved below the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has moved to the oversold level. Therefore, the pair will likely continue falling as sellers target the next key support at 1.1400.