GBP/USD Price Analysis – Aug 07, 2024
Daily Price Outlook
During the European trading session on Wednesday, the GBP/USD currency pair maintained its upward trend and remained well bid around 1.2712 level, hitting the intra-day high of 1.2718 level.
However, the reason for its upward trend can be attributed to the rising expectations of a 50-basis point rate cut by the Fed in September. This undermined the US dollar an contributed to the GBPUSD pair gains.
CME FedWatch tool indicates 67.5% odds of a 50-basis point Fed rate cut in September, up from 13.2% last week. On the other hand, the British Pound may struggle due to rising odds of a quarter-basis point rate cut by the BoE in August.
Bearish US Dollar Boosts GBP/USD Amid Rate Cut Expectations
On the US front, the broad-based US dollar failed to maintain its bullish bias and edged lower on the day as rising expectations of a more aggressive rate cut in September grew after weaker US employment data in July raised fears of a looming recession.
The CME FedWatch tool shows a 67.5% probability of a 50-basis point interest rate cut by the Federal Reserve in September, up from 13.2% a week earlier.
According to Reuters, Federal Reserve Bank of San Francisco President Mary Daly noted that risks to the Fed's mandates are becoming more balanced, and there is openness to cutting rates in upcoming meetings.
Additionally, Chicago Fed President Austan Goolsbee stated that the central bank is prepared to act if economic or financial conditions worsen.
Therefore, the bearish US dollar sentiment helped the GBP/USD pair gain traction, rising above the 1.2719 level as traders reacted to the increasing likelihood of a US interest rate cut.
Dovish BoE Stance and Geopolitical Tensions Cap Gains in GBP/USD Pair
On the other hand, the Pound Sterling (GBP) faced challenges as the Bank of England (BoE) implemented a widely anticipated 25-basis point rate cut at its August meeting. Furthermore, market expectations now include the possibility of two further quarter-point rate cuts by the BoE by December.
Meanwhile, the concerns about escalating Middle East conflicts were heightened after Iran-backed Hezbollah launched dozens of missiles at Israel in response to the assassination of Hamas leader Ismail Haniyeh by an Israeli airstrike in Tehran.
Thus, the dovish BoE stance and escalating Middle East tensions limited gains in the GBP/USD pair, capping its upside potential.
GBP/USD - Technical Analysis
The GBP/USD pair is trading at $1.27022, reflecting a 0.20% increase in today’s session. Despite this uptick, the pair remains below the pivot point of $1.2736, indicating a cautious outlook as traders weigh recent economic data and broader market trends.
Immediate resistance is encountered at $1.2802, with further resistance at $1.2839 and $1.2889, levels that need to be breached for the pair to establish a more sustained upward trajectory.
On the downside, immediate support is located at $1.2680, followed by significant levels at $1.2635 and $1.2614.
The Relative Strength Index (RSI) is currently at 39, suggesting that the pair is nearing oversold conditions, though not yet at levels typically associated with a reversal.
The 50-day Exponential Moving Average (EMA) is positioned at $1.2801, further underlining the bearish sentiment as the current price remains below this technical indicator.
The prevailing sentiment suggests a bearish bias unless the GBP/USD can rise above the pivot point and sustain momentum past immediate resistance.
An entry point for a short position is advised at $1.27349, with a take-profit target of $1.26621 and a stop-loss set at $1.27862.
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