GBP USD drops to key downside target hits new seven month low

GBP/USD dropped further early on Monday to touch a major downside target at the key 1.5000 psychological support level, establishing a new seven-month low in the process, as the US dollar held on to its recent strength.

For more than a week, GBP/USD has been in a consistent retreat from key resistance around the 1.5350 area. This decline was intensified last week on the sterling side by dovish remarks from Bank of England (BoE) Governor Mark Carney, who asserted that UK interest rates should remain low “for some time.” These remarks came even as many BoE-watchers have not been expecting a rate hike until at least mid-year next year.

On the dollar side, last week’s US unemployment claims report for the previous week came out significantly better than expected, hitting the lowest level in a month and providing even further impetus for a December interest rate hike by an already-hawkish Federal Reserve.

For the week ahead, the primary potential mover of GBP/USD should be the US non-farm payrolls report on Friday. If this data comes out either close to or better than the consensus forecast of 201,000 jobs added, a further-strengthening dollar could help push GBP/USD well below the key 1.5000 level.

Aside from the US employment picture, this week also brings a series of Purchasing Managers’ Index (PMI) readings from the UK – Manufacturing PMI, Construction PMI, and Services PMI, on Tuesday, Wednesday, and Thursday, respectively. Any worse-than-expected readings on these releases could further weigh on the pound and pressure GBP/USD.

Having touched the major 1.5000 support target, the currency pair has reached a critical technical juncture. With any further bearish momentum that sustains a push through this key support barrier, GBP/USD could soon begin targeting the next major downside objectives at 1.4800 and then 1.4600, the area of April’s multi-year lows.