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GBPUSD Lower on Rising UK Debt Worries


GBPUSD slumps to five-week lows as the pair continues the correction from recent highs. Comments from Fed’s Chair Jerome Powell yesterday boosted USD. Powell dismissed the case for negative interest rates but warned that the recession could be worse than the WWII and added that the risks are tilted to the downside. Traders cheered the negative interest rates rejection from Fed and USD reversed early losses.

The British pound is under pressure the last week amid concerns of a spiralling deficit and a debt crisis. The UK deficit will hit 273 billion in 2020, as the economy is shrinking at the fastest pace as the March GDP contracted by 5.8%. Rishi Sunak extended the furlough until October but with less subsidies.

BOE Governor Andrew Bailey said that the central bank could help the UK overcome the extra debt piled during the COVID-19 crisis. Bailey also noted the BOE’s policies could avoid the need for austerity in the next months.

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GBPUSD Price Analysis

GBPUSD is 0.30% lower at 1.2201, as the pullback from monthly highs accelerated below the 50-day moving average. The pair failed twice to break above the 200-day moving average during the rebound from March lows. The technical outlook is bearish now for the pair as it breached below the 50-day moving average on Monday.

On the downside, support stands at 1.2181 the daily low. In case of a downside move below the 1.2181 support level, the GBPUSD price could correct lower towards the 1.2130 level in the near term, the March 27th low. If the pair continues lower, the next support level would be met at 1.1821 the 23.6% Fibonacci retracement.

On the other side, the first resistance for the pair stands at 1.2242 the daily top. The next hurdle would be met at 1.2344 the 50-day moving average. A successful break above 1.2344 is likely to open the way for a bigger rally to the next resistance at 1.2470 the high from May 8.

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