GBPUSD falls to lowest level since 1985

GBPUSD fell below 1.14, which is the lowest level since 1985 as latest data sparked additional recession fears. UK retail sales plunged 1.6% MoM in August, the biggest decline since December 2021 and following a 0.4% rise in July and well below analysts’ estimates of 0.5% drop, with rising prices and cost of living weighing on consumer spending. On the annual basis, retail sales fell 5.4% also well below market projections of 4.2%. When compared with the pre-coronavirus level in February 2020, total retail sales were still 0.5% higher. Additionally, elevated inflation, ongoing energy crisis in Europe and strengthening dollar continues to put pressure on the pound. Increased volatility is expected next week as central banks from the UK and US will provide their monetary decisions. The BoE is expected to raise the main rate by 75 bps next Thursday, the most since the 1992 exchange rate crisis, following a cumulative 165 bps increase since December last year. However after the recent US inflation report, markets expect even more hawkish FED, which creates interesting opportunities for traders. 

GBPUSD is testing a key support zone around 1.1425 where pandemic lows are located. The last time the pair traded below this level was 1985 when GBP/USD reached a low of 1.0520! On the flip side, bullish divergence occurred on the Momentum indicator which indicates that a reversal could take place. Source: xStation5