The GBP/USD currency pair is now trading at 1.3350, remaining well within the range established on Wednesday. Surprisingly, investors are feeling risk averse this morning as they await key economic data from the US today. This maneuver by the pair is underlined by pinging the 20-day Exponential Moving Average (EMA) at roughly 1.3404. This development is an important counter to uncertainty and signals a real shift in momentum. Traders are looking for a hotter than expected CPI print for the month of September. With this in mind, the outlook for the British Pound vs US Dollar is growing more hazy by the day.
As of writing, the GBP/USD currency pair has traded lower by a modest 0.05% on the day. In the broader picture, the context is that the Pound Sterling has taken a curious trajectory against its key competitors. Interestingly, the British Pound has been one of the strongest currencies against the Japanese Yen, gaining 0.44% versus this currency pair. Traders are the most fearfully skittish at the current moment. They’re guessing on potential future cuts in the BoE base interest quoted.
Technical Indicators Signal Uncertainty
The basing technical indicators for GBP/USD mirror a fragile recent run, as the 14-day Relative Strength Index (RSI) flirts with the 40.00 level. This level will be key for setting the tone for where price action heads in the coming days. When the RSI falls under 40.00, it indicates the beginning of a new bearish wave of momentum. This in turn could lead speculators to adjust their bets. After the wide drop in early June, the psychological barrier of 1.3500 returns to be a very important resistance level, adding to a generally ugly pair outlook.
GBP/USD is currently trading sideways with a lot of resistance above. Market participants have been on guard, looking for any shifts in monetary policy expectations from the BoE. The recent wave of dovish bets on the Bank of England are weighing on short-term UK gilt yields. This new movement only compounds the uncertainty surrounding the Pound Sterling as a whole.
The August 1 low of 1.3140 is the key support area to watch for GBP/USD. If this support level gets breached, steeper declines may be in order. This would strengthen the bearish sentiment already seen in the market.
Impact of Economic Data on GBP/USD
Powerful and dynamic investors are eagerly awaiting the US CPI reading due out this week. They expect it to give clues as to where inflation is trending and hopefully help inform future moves in Federal Reserve policy. This year’s data release is set to be highly influential on the US Dollar. Foreign exchange traders will be particularly interested in the evolving inflation figures, which may further impact the GBP/USD currency exchange rate.
This has been an important recent development, with UK Core Consumer Price Index (CPI) releases already playing a role in GBP/USD dynamics. This really underscores just how powerful the inflation metrics are in moving the markets’ expectations. The correlation between inflation data and currency movements underscores the sensitivity of GBP/USD to economic reports from both sides of the Atlantic.
With market expectations related to a pivot on US inflation data continuing to grow, traders are left to consider and position themselves ahead of all possible outcomes. The uncertainty around how this data will materialize is another factor making GBP/USD trading more complex.
Market Sentiment and Future Outlook
With market sentiment ever-changing, investors are trying to get a handle on a multitude of factors driving GBP/USD. The complicated situation is further compounded by the poor performance of the Pound against all other major currencies. It has made significant gains against the Japanese Yen. Its ongoing fight with the US Dollar underlines growing market fears over the UK’s fiscal prospects.
Market analysts warn that any surprising movements in US inflation data will cause sharp fluctuations in GBP/USD trading. Such a stronger-than-expected CPI figure would certainly increase expectations for further tightening of monetary policy by the Federal Reserve. This change would likely push the US Dollar even higher against the Pound.
If inflation comes in decidedly less hot, that might push the Fed toward a more dovish direction. That would probably relieve the load on GBP/USD. Accordingly, we encourage market participants to stay on their toes as they analyze near-term U.S. and global economic signals.