The British pound extended its slump against the US dollar on Monday, as the GBPUSD pair went down by 0.50% to trade at 1.2308 in the intraday session. The pair has lost 1.1% since Thursday and is down by 2.51% in April, underlining the dollar’s dominance in recent weeks. Furthermore, the DXY has remained above 106.00 for the fifth successive session, as the market remains apprehensive of a June rate cut by the Federal Reserve.
At its current level, the GBPUSD is near four-month lows, but the decline could slow down if safe haven demand for the US dollar reduces. The past two weeks had seen an accelerated demand for the US dollar as Israel and Iran attacked each other. However, there has been a notable decline in the war rhetoric in the past four days, and this could bring downward pressure on the dollar. Both Israel and Iran downplayed the impact of each other’s attacks, seemingly bringing an end to the historic direct confrontation between the two nations.
Looking ahead, the dollar has substantial support from high-yielding US treasuries as the market buys into post-June Fed interest rate cuts. US inflation has remained stubbornly high, climbing in three of the last four months and standing at 1.5% above the Fed target, as per the March figures. Similar to the US, the UK is also struggling with inflation, with the Mach reading having come at 1.4%. However, the UK also has the additional challenge of an economy that contracted in the last two quarters, giving the BoE a headache in balancing the two opposing pressures.
Looking ahead, there aren’t any high-impact data in the barrel from the US and the UK, but traders are likely to position themselves ahead of PMI readings for both countries set for release on Tuesday.
Technical analysis
The RSI on GBPUSD suggests that the downside is likely to continue. Furthermore, the sellers are likely to remain in control as long as resistance remains at 1.2335. That could see them break the support at 1.2287 and potentially test 1.2234 in extension. On the other hand, a move above 1.2335 will favour the bulls to take control, with the next resistance coming at 1.2338. A continuation of the momentum will break the resistance and potentially test 1.2435.
