The Great British Pound (GBP) is tanking against the US Dollar (USD). It’s now trading under the key 200-day Exponential Moving Average (EMA) at around 1.3270. Market expectations are hardening for additional interest rate cuts from the Bank of England (BoE). Consequently, the GBP/USD exchange rate has continued its downward path, encountering heavy selling pressure around the August low of 1.3140.
Despite recent advances, the GBP reached a two-week low of just below 1.3030 vs. the USD Friday. Analysts think this pair is under heavy selling steam, as the US Dollar stays strong near a five month high, currently around 100.30. The upcoming US Nonfarm Payrolls (NFP) data, scheduled for release at 13:30 GMT, may further influence market movement.
GBP/USD Under Pressure
GBP/USD pair is having a hard time as the pair trades below the key resistance area of 1.3270. This 200-day EMA level has historically been a big line-in-the-sand level for traders. As it stands right now, the signal shows that the duo is beginning to head south on the bearish side.
Taking another look at recent market conditions, we see that the pair has been going back down again. It ran into strong offers around 1.3140, the low in August. This leaves the pair at risk of returning close to this month’s high of 1.3370, which has now become a key hurdle for any further rebound. The most recent technical indicators point to a bearish development. For instance, the 14-day Relative Strength Index (RSI) has dipped under 40.00, apparently indicating new bearish momentum for the GBP/USD currency pair.
Analysts have their ears to the ground on this one. The UK Consumer Price Index (CPI) report for October, released last week, confirmed what we all knew was coming — that inflationary pressures have cooled considerably. This release has deepened dovish expectations about the Bank of England.
Bank of England and Economic Indicators
The recent CPI report has caused a wave of associated speculation on the implications for the BoE’s monetary policy. The data continues to paint a picture showcasing easing price pressures, which should encourage the BoE to soften their hawkish overtures. The current spike in unemployment has hit 5% for the three months ending in September. This is the highest real wage growth since early 2021 and adds to a more hawkish picture for the UK economy.
“Most participants noted further rate cuts could add to the risk of higher inflation becoming entrenched or could be misinterpreted as a lack of commitment to the 2% inflation objective.” – Federal Reserve Officials
Minutes from the most recent Federal Open Market Committee (FOMC) meeting revealed officials are united against cutting interest rates this December. This decision is likely to continue to reinforce the USD’s attractive position in the currency markets. As expectations of Fed rate cuts this year continue to wane the USD is divergently a strong competitor.
Market Reactions and Future Outlook
With economic data and central bank signaling continuing to shape the landscape, traders are on high alert for movements in the Forex market. The GBP has shown remarkable strength compared with other currencies. In particular, it has become the fiercest outperformer relative to the Japanese Yen.
Yet, experts warn traders to continue looking at support levels, important resistance barriers and remain vigilant as they travel this tumultuous terrain. For GBP/USD, the April low just shy of 1.2700 is seen as an important support zone going forward.
Next week’s budget announcement will likely have a big effect on market sentiment.
“The budget is one week today and we will lay out our plans.” – Government Officials