The GBP/USD pair crashed to the lowest level since January as the risks on the UK economy rose. The pair fell to a low of 1.3520, which was about 5% below the highest level this year. It was also the lowest level since January 18.
UK risks rise
The UK has made headlines recently as the ongoing power shortage intensified. Gas prices have jumped, pushing some companies out of business. At the same time, panic buying and a lack of drivers has led to a major fuel shortage in most gas stations.
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As a result, there are risks that these events will have a major impact on the country’s economy. Most importantly, there is a likelihood that these shortages will lead to more inflation. Recent data showed that the country’s headline consumer price index (CPI) rose to 3.2% in August. This trend will likely continue, with the Bank of England (BOE) expecting it to hit 4% in the near term.
The GBP/USD also crashed because of the stronger US dollar. The dollar index, a gauge that measures the performance of the greenback, jumped to the highest level in a few months. The sharp increase in the US dollar happened as US Treasuries jumped. The yield of the 10-year government bond rose to a three-month high of 1.55% while the 30-year rose to more than 2%.
The dollar has also risen because of the rising risks in China and the US. Like in the UK, China is facing a major power problem that has seen many factories reduce their production. This could push the second-biggest economy in the world to have a slowdown.
Meanwhile, there is a growing risk that the American government will default on its debt obligations if Congress won’t pass a debt ceiling bill.
The daily chart shows that the GBP/USD pair has been under intense pressure lately. And this week, it managed to move below the key support at 1.3600, where it had struggled to move below several times before. It also declined below the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has moved below the oversold level.
Therefore, the pair will likely keep falling as bears target the next key support at 1.3500. This view will be invalidated if the price moves above 1.3650.
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