The GBP/USD currency pair, commonly referred to as ‘Cable’, struggles to defend its newfound bottoms. In the opposite direction, the US Dollar remains strong. A quick look at the markets Recent market changes indicate a decline in the belief that the Federal Reserve will announce additional interest rate cuts this year. This dynamic is influencing currency traders as they await key economic indicators, including the US ADP Employment Change report for October, which could provide additional insights into the job market.
With traders on edge with all of these updates, the GBP/USD pair remains in a very bearish outlook. With prices currently trading below their 200-day Exponential Moving Average (EMA) of about 1.3279, the outlook appears further bearish. In fact, the 14-day Relative Strength Index (RSI) is now below 30.00. This drop adds credence to the idea that overall bearish momentum is taking hold in the market.
Current Market Conditions
During the European session on Tuesday, the Pound Sterling traded in a narrow range. It remained well above the key psychological level of 1.3100 against the US Dollar. This level is expected to be the key foundation area for GBP/USD moving forward in the short run. Since then, the Pound has enjoyed a modest rebound. Despite this, it has yet to stop its path of depreciation against all major currencies except for the few antipodean currencies.
And of course, market analysts have pointed out the volatility in this GBP/USD pair. What happens in the next few economic reports will largely determine its direction. The next US ADP Employment Change report indicates private employers added just under 24,000 new hands on deck during October. This follows the big drop of 32,000 jobs in September. Any evidence of an improving jobs market would likely reduce the anticipation for further interest rate cuts. This change could have repercussions on the Federal Reserve’s own policy deliberations.
“Haven’t made a decision about December.” – Jerome Powell
The Federal Reserve is threading the needle on interest rates. In fact, as Fed Chairman Jerome Powell recently reiterated, conversations about how we will make future monetary policy decisions are already in progress.
Implications of Economic Indicators
The economic landscape surrounding GBP/USD is clouded by domestic issues in the UK. Rachel Reeves, the incoming UK Chancellor of the Exchequer, has already committed to raising taxes. Her immediate challenge is to make up a £22 billion hole in government finances in the new Autumn Budget due later this month. Analysts warn that these steps would be likely to place further downward pressure on the Pound.
Additionally, the Bank of England has maintained interest rates at 4% during its September policy meeting due to persistent inflationary pressures. This unprecedented approach will inevitably impact investor sentiment and trading patterns associated with GBP/USD in the coming days.
Traders are still processing this news. It’s important for them to be aware of domestic and international economic measures that may affect how the currency pair performs. The market has been very focused on the US job numbers. More positive results here would raise the bar for a near-term rate cut and as such would add to downward pressure on GBP/USD.
“Far from a foregone conclusion,” and “strongly different views.” – Jerome Powell
Powell’s statements underscore the complexity of today’s economic conditions. They do highlight the confusion traders face as they try picking their way through the FX minefield.
Technical Analysis
From a technical standpoint, the GBP/USD pair is at important resistance/support levels that will be important for traders to watch closely. The at 1.3000 psychological barrier is making a vital support base. At the same time, the key hurdle looms at the October 28 peak near 1.3370. Whether GBP/USD can break above or below these thresholds will probably determine its near-term direction.
Given that it trades under key moving averages and in bearish momentum indicator territory, the nature of the market requires participants to stay watchful. GBP/USD trades account for approximately 11% of international foreign exchange activity. As the fourth most traded currency unit, it has an average trading of $630 billion per day, so its movements affect more than just currency trading.