• US Durable Goods Orders for July show a significant decline of -5.2% MoM, exceeding estimates and marking the biggest drop since April 2020.
  • The US labor market remains tight, with unemployment claims below estimates.
  • Weak Retail Sales and PMI figures in the UK reignite recession fears, leading to adjustments in Bank of England rate hike expectations.

The Pound Sterling (GBP) drops sharply late in the New York session vs. the US Dollar (USD) and exchanges hands below the 1.2700 figure on Thursday, losing 0.85%. Federal Reserve officials hawkish stance, alongside weak economic data in the United Kingdom (UK), sponsored the GBP/USD fall, which trades at 1.2615 after hitting a high of 1.2728.

Sterling loses ground vs. the US Dollar, as Fed officials eye a longer restrictive stance as UK’s data disappoints

Two Federal Reserve officials crossed news wires as the Jackson Hole event began. Firstly, the Philadelphia Fed President Patrick Harker said the US central bank must keep its current restrictive stance while acknowledging that the economy would suffer a slowdown. After that, Boston Fed President Susan Collins expressed the Fed “may be” at a sufficiently restrictive level but kept the door open for additional hikes. She added that it’s premature to talk about rate cuts.

Data-wise, the US economic docket witnessed a slowdown in long-lasting goods, as the US Commerce Department revealed. Durable Goods Orders in July plunged by –5.2 % MoM, exceeded estimates of -4%, and trailed well below the 4.4% increase a month ago; it was the biggest decline since April 2020.

Digging into the data, excluding transportation, the reading was positive for four straight months, with orders rising 0.5% in July and up from 0.2% in June. Other data, revealed by the US Department of Labor, showed the labor market remains tight, as unemployment claims for the week ending August 19 rose by 230K, below estimates of 240K and 9K below the previous week.

Aside from this, the release of weaker Retail Sales in the UK and Wednesday’s disastrous PMI figures deepening further below the 50 lines, seen as expansion/contraction level, reignited recession fears. Hence, money market futures adjusted Bank of England’s (BoE) rate hike expectations, with most market participants expecting two additional rate hikes, as they see rates peaking at 5.75%.

Given the backdrop, the strength of the US economy can boost the Greenback’s (USD) scenario and keep the GBP/USD exchange rate downward pressured. If BoE officials give any dovish signals, expect the pair to fall towards the 200-day SMA at 1.2394.

GBP/USD Price Analysis: Technical outlook

From a technical perspective, the GBP/USD is neutral to downward biased, with the pair unable to crack the 50-day Simple Moving Average (SMA) at 1.2791, which acted as resistance. However, buyers could remain hopeful the 1.2600 level would hold unless sellers drag the major below and achieve a daily close below the latter. If the GBP/USD drops below 1.2600, the next support would be the 1.2500 mark. Conversely, the pair would remain trading within the 150 pip range of 1.2600-1.2750.

GBP/USD Daily chart

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