GBP/USD Price Analysis – Aug 14, 2024
Daily Price Outlook
During Wednesday's European trading session, the GBP/USD currency pair faced significant volatility, initially dropping to an intraday low of 1.2815 before recovering to near 1.2840 as the US Dollar weakened ahead of crucial US inflation data.
The GBP's recovery was driven by market anticipation of softer US CPI figures for July, which could influence the Federal Reserve's monetary policy decisions.
Despite the intraday recovery, the GBP remains under pressure due to easing inflation in the UK, which has increased the likelihood of future rate cuts by the Bank of England (BoE).
GBP/USD Volatility Expected Amidst BoE Rate Cut Speculations and Inflation Concerns
The Pound Sterling struggled against most major currencies during Wednesday’s London session after the UK’s Consumer Price Index (CPI) report for July came in softer than expected.
The annual headline CPI rose by 2.2%, below the forecasted 2.3%, and core inflation decelerated to 3.3%, compared to 3.4% expected. These figures have heightened market expectations for the BoE to initiate sequential interest-rate cuts, further pressuring the GBP.
Despite the softer inflation data, BoE MPC member Catherine Mann has expressed concerns about persistent inflation, particularly driven by the service sector, which has seen slower wage growth.
The recent UK Employment report showed a decline in wage growth, with Average Earnings Excluding Bonuses rising at a slower pace of 5.4%, the lowest in two years. This decline in wage growth is expected to ease some of the inflationary pressures in the UK economy, potentially supporting the BoE's case for more dovish monetary policy.
As a result, the GBP/USD pair is likely to remain volatile, with investors closely monitoring further UK economic data and BoE commentary for clues on future rate cuts.
Impact of Federal Reserve Rate Cut Expectations and CPI Data on GBP/USD
On the US front, the GBP/USD pair is heavily influenced by growing speculation of a Federal Reserve rate cut in September.
The latest US Producer Price Index (PPI) report for July showed softer-than-expected inflation, reinforcing expectations that the Fed might need to ease its monetary policy.
According to the CME FedWatch Tool, traders now see a 54.5% chance of a 50 basis point rate cut in September, a slight increase following the PPI data release.
The upcoming US Consumer Price Index (CPI) data for July is expected to show a slight deceleration in both headline and core inflation, with annual rates projected at 2.9% and 3.2%, respectively. If the CPI data confirms this slowdown, it could further weaken the US Dollar, supporting the GBP/USD pair's recovery.
However, if the CPI figures come in higher than expected, it could dampen market expectations for aggressive Fed rate cuts, potentially strengthening the US Dollar and applying renewed pressure on the GBP/USD pair.
Traders will be closely watching the CPI release at 12:30 GMT, as it will significantly influence the near-term direction of the GBP/USD pair.
GBP/USD - Technical Analysis
GBP/USD is currently trading at $1.28398, down 0.06% as it edges closer to key support levels. The currency pair is slightly below its pivot point of $1.2873, which is a critical level to monitor.
The daily chart shows that GBP/USD is in a delicate position, balancing between potential further losses and a possible recovery.
Immediate support is found at $1.2803, with subsequent supports at $1.2756 and $1.2701. If the pair breaks below these levels, it could signal a bearish continuation, potentially driving the price lower.
On the upside, resistance lies at $1.2934, followed by $1.2978 and $1.3030. A move above the pivot point at $1.2873 could shift momentum back in favor of the bulls, setting the stage for a test of these resistance levels.
The RSI is at 65, indicating that the pair is nearing overbought territory but still has some room to climb if buying pressure increases.
The 50-day Exponential Moving Average (EMA) at $1.2757 is providing solid support and aligning with the overall uptrend seen in recent sessions.
For traders considering a short position, an entry below $1.28551 could be strategic, with a take profit target at $1.27910. A stop-loss at $1.29034 would help manage risk if the pair unexpectedly moves higher.
The current technical setup suggests that GBP/USD could experience further downside pressure, but a break above the pivot could quickly change the outlook.
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