GBPUSD trades modest losses below 1.1800

• GBPUSD starts the week on a softer note amid a nice pick up in dollar demand.
• Bullish comments from the Fed’s Waller push US bond yields higher and support the dollar.
• The gloomy outlook for the UK economy weighs on the British pound and helps limit gains.
• Chancellor Jeremy Hunt will now play a key role in determining the short term trend of GBPUSD.

The pair GBPUSD has a hard time building on the momentum of last week’s break above the 100-day SMA and starts the new week on a weaker tone. The pair remains on the defensive during the first half of the European session and is currently trading just above 1.1750 amid resurgent demand for the US dollar. However, the decline remains muted as attention remains focused on this week’s key macro data and UK event risk.

Of aggressive line, Waller of the Fed revives the demand for dollars

The US dollar rebounds from its lowest level since mid-August, following last week’s US consumer inflation figures, and acts as a headwind for GBPUSD. US Treasury bond yields rose in reaction to more hawkish comments from Fed Governor Christopher Waller on Sunday. During a conversation in Sydney, Australia, Waller said the US central bank was not easing its fight against inflation. This, coupled with a softer tone around equity markets, is seen as offering some support to the safe-haven dollar.

Gloomy prospects for the UK economy weigh on the British pound

Aside from this, the worsening outlook for the UK economy continues to undermine sterling and helps limit GBPUSD’s gains. In fact, the National Institute of Economic and Social Research (NIESR) has warned that there is a significant risk of a deeper economic recession in 2023. The think tank now forecasts a flat GDP in the fourth quarter, with a high risk of contraction, and a drop in the first three months of 2023. This, in turn, is preventing traders from making aggressive bullish bets and limiting GBPUSD’s gains.

Focus turns to Chancellor Hunt’s fall statement

Despite the negative factors mentioned above, market participants prefer to wait on the sidelines before the key national data: the monthly employment details on Tuesday and the CPI report on Wednesday. The big event for the British pound, meanwhile, comes on Thursday, when Chancellor Jeremy Hunt outlines his fiscal plans. After being warned by the UK’s Office for Budget Responsibility that government borrowing was higher than estimated, Hunt is planning a big package of spending cuts and tax increases. This could act as a headwind for the British pound and the GBPUSD pair.

technical perspective

From a technical point of view, last week’s sustained move and acceptance above the 100-day SMA for the first time since February could be seen as a new trigger for bullish traders. That said, failure near the top of a month-and-a-half rising channel warrants caution. Therefore, it is prudent to wait for buying beyond that barrier, currently around the 1.1850-1.1860 area, before positioning for further gains.

Conversely, any significant pullback towards the 1.1700 signal could be seen as a buying opportunity. This, in turn, should limit the GBPUSD’s decline near the 100-day SMA resistance breakout point, now turned support, currently around the 1.1670-65 region.