GBP/USD suffers seven-day slide amid weak UK PMIs, ahead of FOMC's decision

• US business activity slowdown and gloomy UK economic outlook push GBP/USD into a seven-day slump.
• UK PMI shows the largest month-on-month drop in 11 months, signaling a potential weakening of post-pandemic spending.
• Market anticipation builds for the Federal Reserve decision and Powell’s press conference, with GBP/USD trajectory hinging on the outcome.

GBP/USD extends its downtrend to seven consecutive days amidst mixed economic data from the United States (US), while further deterioration in the United Kingdom (UK) economy paints a gloomy scenario as the Bank of England (BoE) struggles to curb high inflation. At the time of writing, the GBP/USD is trading at 1.2831 after reaching a high of 1.2883, down 0.16%.

Bank of England's battle with inflation intensifies as UK economy deteriorates

Business activity in the US slowed down, as revealed by S&P Global mixed readings. As shown by the Manufacturing PMI, activity came at 49, above June’s 46.3 as well as estimates, but remained in recessionary territory. Services PMI clung to expansionary territory at 52.4, trailed estimates, and the previous month at 54.4, dragging the composite number to 52 in July, from 53.2 in June, falling to a five-month low.

That weighed on the GBP/USD pair, which began dipping during the European session, with UK PMI showing a preliminary drop to 50.7 from 52.8 in June, the biggest MoM fall in 11 months, as reported by Reuters.

“Rising interest rates and the higher cost of living appear to be taking an increased toll on households, dampening a post-pandemic rebound in spending on leisure activities,” said Chris Williamson, chief business economist at S&P Global, which produces the data.

Late in the week, the Fed would deliver its interest rates decision, with markets estimating a 25 bps increase in the Federal Funds Rates (FFR) to 5.25-5.50%. However, Fed Chair Jerome Powell’s press conference is eyed because the swaps market does not show another Fed hike. Hawkish remarks by Powell could rock the boat, with the GBP/USD extending its losses toward the 1.2700 area, while dovish remarks could lift the pair toward 1.2900 or beyond.

GBP/USD Price Analysis: Technical outlook

The GBP/USD prolongs its downtrend, past below the 61.8% Fibonacci (Fibo) retracement at 1.2851, which could open the door for further losses past the 1.2800 mark. Of note, the GBP/USD slid below the 20-day Exponential Moving Average (EMA) at 1.2862, exacerbating a drop below the 1.2800 figure, but prices recovered from that level toward 1.2830. Nevertheless, If GBP/USD breaks the 1.2800 floors, the next support would emerge at the 78.6% Fibo level at 1.2773 before extending to ward the 50-day EMA at 1.2717. Conversely, if GBP/USD stays afloat at 1.2800, that could open the door to reclaiming the 20-day EMA, followed by 1.2900.