The GBP/USD pair suffered a harsh reversal last week after it peaked at a high of 1.2430
The GBP/USD exchange rate remained under pressure on Monday morning as traders assessed risks to the US economy. The pair was trading at 1.2225, which was much lower than last week’s high of 1.2430.
US debt rating downgrade
Moody’s downgrade of America’s debt outlook served as a major trigger for the GBP/USD pair. While Moody’s anticipates future economic strength, concerns about escalating debt and political divisions emerged. Projections suggest a worrisome rise in interest payments to 26% of revenue and 4.5% of GDP by 2033, up from 9.7% and 1.9% in 2022, signaling a worsening debt situation.
The US national debt soared past $33.7 trillion, escalating rapidly in recent months. The Treasury Department hinted at the need to borrow over a trillion dollars soon. Challenges emerged in selling long-term debt, with investors demanding higher rates due to perceived risks. The struggle to attract buyers was evident in a recent $24 billion sale, where primary dealers took just 24.7%, causing the bid-to-cover ratio to plummet to a two-year low.
Another significant risk is the potential end of government funding, with doubts arising about the Republican speaker’s plan to prevent a shutdown garnering enough support in Congress. This uncertainty raises the specter of an imminent government shutdown, impacting market stability. Furthermore, the absence of US and UK data on Monday due to the shutdown heightens anticipation for forthcoming US inflation figures, adding to market volatility and influencing GBP/USD trading strategies.
GBP/USD technical analysis
The GBP/USD pair suffered a harsh reversal last week after it peaked at a high of 1.2430. It has now slipped below the key support levels at 1.2336 (October 11th high) and 1.2288 (October 24 high). The 25-period and 50-period moving averages are about to make a bearish crossover.
It has also formed a small bearish pennant pattern. Therefore, the pair will likely continue falling as sellers target the psychological level at 1.21500.
