GBP/USD Forecast: Drop to 1.1700 Likely – InvestingCube S&R

The GBP/USD price formed an inverted cup and handle pattern as concerns about the British economy continues. It is trading at 1.1800, slightly above this pattern’s lower side. The price is about 4% below the highest point this month. 

UK economy is slowing

The GBP to USD exchange rate has come under intense pressure after the relatively weak economic numbers from the UK. On Tuesday, data by S&P Global showed that the flash manufacturing and services PMIs declined sharply in August. Companies complained about the rising cost of doing business and weak demand.

On Monday, a report by Citigroup warned that UK’s inflation will soar to a multi-decade high of 18.3%. It attributed the situation to the rising wholesale gas prices in the country that are expected to rise to over 4,000 pounds. The Bank of England expects that inflation will rise to 13% while Goldman Sachs sees it rising to above 15%.

The GBP/USD price declined after the Office of National Statistics (ONS) downgraded the size of the UK economy. The agency estimated that the country’s economy contracted by a whopping 11% in 2020 during the pandemic.

The next key catalyst for the GBP to USD exchange rate will be the upcoming Jackson Hole meeting in Wyoming. Bank of England’s Andrew Bailey and Fed’s Jerome Powell will have an opportunity to reset expectations on their future plans.

GBP/USD forecast

The four-hour chart shows that the GBPUSD exchange rate has been in a strong downward trend in the past few days. Along the way, the pair formed an inverted cup and handle pattern that is shown in black. It also moved below the 25-day and 50-day moving averages while the MACD moved below the neutral point. 

Therefore, the pair will likely continue falling in the coming days and possibly move below the support at 1.1700. This view is supported by InvestingCube’s S&R indicator, which is one of the most accurate tools for day traders. The stop-loss for this trade is at 1.1975.