GBP/USD: UK holiday tests bears at 29-month low near 1.1650, NFP, recession in focus

• GBP/USD holds lower ground at the recently flashed multi-month bottom.
• Fears of UK’s recession escalate as energy bill jumps, political anxiety escalates.
• Hawkish Fed, risk-aversion underpin DXY towards refreshing 19-year top.
• Holiday in the UK could restrict immediate moves, PMIs, US NFP will be crucial for near-term directions.

GBP/USD stays bearish at the lowest levels since March 2020, down 0.66% intraday to near 1.1660 during early Monday morning in Europe. That said, the Cable pair refreshed the multi-month low amid broad US dollar strength. The downside move, however, recently struggled as the UK markets are closed due to the Summer Bank Holiday.

That said, the US Dollar Index (DXY) rises to a fresh high in September 2002, up 0.50% near 109.35, while tracking the US Treasury yields to the north. The rush towards the greenback, as well as towards selling the US bonds, seemed to have taken clues from the Jackson Hole Symposium and the UK’s political drama. It should be noted that the US 10-year Treasury yields rise nine basis points (bps) to 3.123% at the latest, poking a monthly high.

The DXY rallied the previous day after Fed Chairman Jerome Powell said, “Restoring price stability will take some time, require using central bank's tools 'forcefully',” during his much-awaited Jackson Hole speech. The policymaker also stated that restoring price stability will likely require maintaining a restrictive policy stance for 'some time'.

Additionally, fears surrounding the UK’s economic slowdown escalate after the British energy regulator conveyed that the British energy bills will jump 80% to an average of 3,549 pounds ($4,188) a year from October.

To tackle the same, UK’s leadership frontrunner Liz Truss is considering cutting value-added tax (VAT) by 5% across the board to help tackle the cost-of-living crisis if she succeeds Boris Johnson as prime minister next month, the Sunday Telegraph reported. However, the move is considered less effective by supporters of the other candidate for leadership of the governing Conservative Party, former finance minister Rishi Sunak.

Elsewhere, economists at Goldman Sachs have sharply cut British growth forecasts and expect a recession to begin later in the year, as the impact of surging inflation on households' disposable incomes hits consumption.

Against this backdrop, the S&P 500 Futures drop 0.80% intraday while tracing Friday’s downbeat Wall Street performance.

It should be noted that the hawkish Fed and energy/political in the UK could exert downside pressure on the GBP/USD prices. However, a holiday in Britain may restrict immediate moves of the cable pair. Above all, chatters surrounding the recession and Friday’s US jobs report for August will be important for the pair traders to watch for fresh impulse.

Technical analysis

A daily closing below July’s low near 1.1760 directs GBP/USD bears towards March 2020 bottom surrounding 1.1410. It’s worth noting, however, that the oversold RSI (14) could offer intermediate halts during the pair’s south run.