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US Dollar Strengthens Amid Global Growth Concerns!

In the recent week, the US Dollar experienced a resurgence in strength due to growing uncertainties about global economic growth. China’s economic condition has come under close examination, prompting investors to turn towards safer options like US Treasuries and UK Gilts. Although the British Pound survived a test of its support levels, questions linger about whether GBP/USD can maintain its stability.

Despite a dip in Treasury yields, the US Dollar rallied strongly leading into Wednesday’s trading session, reflecting a market preference for safe-haven assets in the face of an unpredictable global growth outlook. The demand for US government bonds caused the yield on the 10-year Treasury note to briefly fall below 4.0% before recovering, albeit remaining notably below the 4.20% level seen the previous Friday.

Yesterday, China reported a larger-than-expected trade surplus in monetary terms. However, both imports and exports volume experienced significant drops of -12.4% and -14.5% respectively, year-on-year, until the end of July. These declines in economic activity were compounded by Moody’s decision to downgrade several small US banks on Monday, further adding to concerns.

Amid the rush to secure US Dollars, the British Pound appeared poised to decline but found support around the 1.2680 level. Notably, both the US Treasury and UK Gilt markets are characterized by the inversion of the 10-year and 2-year notes. The US has a negative spread of around -75 basis points (bp), while the UK hovers around -50 bp. This inversion suggests that markets anticipate economic challenges down the line when demand for long-term bonds outpaces short-term bonds.

Despite these concerns, equity markets remain close to all-time highs. However, their performance has waned in August following a remarkable rally throughout July. In the realm of currencies, if perceived risks to global economic output continue to mount, the US Dollar could strengthen further. Such a scenario could prompt GBP/USD to retest its support levels.

US Dollar- Technical Analysis of GBP/USD

Recent technical analysis of GBP/USD indicates that it touched a low of 1.2685, just above crucial historical breakpoints in the 1.2670 – 1.2680 range. These levels could serve as support. If breached, the nearby recent lows at 1.2620 and 1.2590 might offer additional support. The latter level aligns with the 100-day simple moving average (SMA), potentially lending it additional significance.

Reviewing the SMAs, the price remains above the 55-, 100-, and 200-day SMAs, all of which exhibit positive gradients. However, it sits below the 10- and 21-day SMAs, which possess negative slopes. This configuration suggests the potential for short-term bearish momentum while preserving medium and long-term bullish momentum, at least for now.

On the upside, resistance could emerge around the psychological level of 1.3000, coinciding with a recent peak. Further resistance might materialize around the 16-month high of 1.3142, close to historical breakpoints in the 1.3150 – 1.3160 range. Overall, GBP/USD seems to be navigating within a broad range.

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