GBP/USD Price Analysis – Aug 05, 2024
Daily Price Outlook
During the European trading session, the GBP/USD currency pair failed to gain traction and remained under pressure around the 1.2755 level even though the US dollar is losing its traction amid dovish sentiment surrounding the Fed’s policy stance.
The reason for its downward trend can be attributed to the Bank of England (BoE) delivering a broadly expected 25-basis point rate hike at its August meeting on Thursday. This undermined the GBP currency and contributed to the GBP/USD pair losses.
Looking ahead, traders will be watching the US ISM Services Purchasing Managers Index (PMI) closely.
The PMI, which is anticipated to rise to 51.0 in July from 48.8 in June, could have a significant impact on the market. A stronger-than-expected PMI might strengthen the USD and potentially cap gains in other assets.
US Dollar Weakness and Impact of Employment Data on GBP/USD Pair
On the US front, the US dollar struggled to gain traction and edged lower on the day due to the Federal Reserve's dovish stance and weak employment data.
Traders expect a 50-basis point rate cut in September and over 100 bps cuts this year, according to the CME FedWatch tool. This expectation arises from weak US economic data suggesting a slowdown and casting doubt on a "soft landing" for the economy.
Meanwhile, the labor market is deteriorating, and the manufacturing sector is slowing down sharply.
The July Nonfarm Payrolls report showed a drop in labor demand and a rise in unemployment to its highest since November 2021, increasing the likelihood of rate cuts.
On the data front, US Nonfarm Payrolls increased by 114,000 in July, falling short of the 175,000 expected and down from 179,000 in June. The unemployment rate rose to 4.3%, the highest since November 2021, and Average Hourly Earnings grew by just 0.2%, below the 0.3% forecast.
Therefore, the weak US employment data and rising unemployment rate have increased the possibility of rate cuts, putting pressure on the US dollar and impacting the GBP/USD pair, which remains under pressure.
Impact of BoE Rate Cut and Inflation Outlook on GBP/USD Pair
On the other side, the losses in the GBP/USD pair were mainly due to the Bank of England (BoE) implementing a widely expected 25-basis point rate cut at its August meeting. BoE Governor Andrew Bailey added that the increase in the minimum wage has not caused major concerns for the bank.
He also mentioned that the overall inflation trend, including some potential risks, is now closer to the 2% target.
This rate cut and the positive inflation outlook contributed to the GBP's weakness, as lower interest rates generally make a currency less attractive to investors. As a result, the GBP/USD pair faced downward pressure despite the US dollar's struggles.
GBP/USD - Technical Analysis
The GBP/USD pair is currently trading at $1.27991, reflecting a slight decrease of 0.07% as market participants continue to assess the impact of recent economic data and geopolitical events.
The currency pair has been navigating a tight range, with traders closely watching key technical levels for potential breakout opportunities. The 4-hour chart shows that GBP/USD is trading just below its pivot point at $1.2802, suggesting a bearish bias in the short term.
Immediate resistance is identified at $1.2840, which could serve as a critical barrier for bullish momentum. If the pair breaks above this resistance, further upside potential may be capped at $1.2862 and $1.2890.
Conversely, immediate support is found at $1.2741, with subsequent support levels at $1.2711 and $1.2678. These support levels are essential for traders to monitor, as a breach below could signal further downside pressure.
The Relative Strength Index (RSI) is currently at 52, indicating a neutral stance that suggests neither overbought nor oversold conditions.
This neutrality implies that GBP/USD has room to move in either direction, depending on market catalysts. The 50-day Exponential Moving Average (EMA) is aligned with the pivot point at $1.2802, reinforcing its significance as a critical level for near-term price action.
Given the current technical landscape, traders might consider selling if GBP/USD remains below $1.28017, targeting a potential decline toward $1.27409. A stop-loss above $1.28438 is recommended to manage risk and protect against unexpected volatility.
Related News
GOLD Price Analysis – Aug 05, 2024
JOIN LONGHORNFX TODAY
24/7 live support, lightning fast withdrawals, guaranteed safe and reliable trading platforms with a true ECN broker.