GBP/USD consolidates below 1.3600 with support at 1.3540

• The sterling, rejected at 1.3645, finds support at 1.3540.
• The US dollar bounces up on safe-haven flows.
• GBP/USD remains negative, heading towards 1.3161 – Commerzbank.

The British pound has put an end to a four-day rally on Wednesday and pulled back from one-week highs at 1.3645. US dollar's strength has weighed on the cable that has retreated below 1.3600 to consolidate above session lows at 1.3540.

The dollar bounces up on growing inflation concerns

The US dollar bounced up against its main rivals on Wednesday, with the Dollar Index returning to levels near year-to-date highs as a sourer market mood weighed on risky assets. Crude oil prices have reached a fresh seven-year high, boosting concerns about the impact of surging inflation on the post-pandemic recovery.

Beyond that, the US ADP report, which is observed as an advanced indicator of Friday’s Non-Farm Payrolls, has posted a 568.000 increase in September, beating expectations of 428,000 new jobs. A confirmation of these figures later this week might clear the path for the Federal Reserve to start rolling back bond purchases in November, which has been another important source of support for the greenback.

GBP/USD expected to decline towards 1.3161 – Commerzbank

From a broader perspective, Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, sees the pair biased lower, towards 1.3161: “GBP/USD has not maintained the break of the 1.3515/04 January 2009 low and 2019 peak – it is not clear if this was a premature break or a false break, but intraday Elliott wave counts remain negative and we will look to reinstate short positions (…) “Currently while capped by 1.3914 we will maintain a negative bias and allow for a scope to the 200-week ma at 1.3161. The recent low is 1.3411.”

Technical levels to watch