GBP/USD: 3 reasons why sterling just crashed to 2020 lows

The British pound crashed to the lowest level since 2020 after the significantly weak UK retail sales numbers. The GBP/USD pair retreated to a low of 1.2892 while the EUR/GBP price rose to the highest point since April 10.

Cautious BOE ahead?

The Office of National Statistics published weak retail sales numbers. In general, sales declined by 1.4% on a month-on-month basis, which translated to an annualised growth of 0.9%. The two figures were worse than the median estimates of -0.3% and 2.8%, respectively.

Excluding the volatile food and energy products, retail sales fell by 1.1% in March. This decline was also worse than the expected -0.4%. 

Further data by Markit revealed that the services and manufacturing sectors continued to worsen in April. The manufacturing PMI declined to 55.3 while the services PMI fell from 62.6 in March to 58.3 in April. As a result, the composite PMI declined to 57.6. Still, the two sectors are doing well since they are above the expansion zone of 50.0.

Therefore, the GBP/USD pair declined sharply because analysts now expect that the Bank of England (BOE) will make a strategic pause on rate hikes. Besides, the bank has already delivered three rate hikes and analysts were expecting more to come.

At the same time, the GBP/USD price declined because of the hawkish statement by Jerome Powell, the Fed Chair. In a statement at an IMF summit on Thursday, he reiterated that the bank will continue with its aggressive policy in May this year. This will include a 0.50% rate hike and quantitative tightening.

GBP/USD forecast

The GBP/USD price has been in a downward trend for a while. Along the way, the pair has been forming a descending triangle pattern that is shown in yellow. Historically, this triangle pattern is usually a bearish signal. The pair declined below the lower side of the descending triangle. It has also moved below the 25-day and 50-day moving averages and dropped to 1.2900 as I had predicted. Therefore, the pair will likely keep falling as bears target the next key support at 1.2800.