GBP/USD Price Analysis – Aug 21, 2024
Daily Price Outlook
Despite upbeat PMI data, the GBP/USD currency pair has managed to stay above the key 1.3000 level, reaching new highs near 1.3050.
This strength is attributed to growing expectations that the Federal Reserve (Fed) may cut interest rates in September.
However, the pair's upward momentum is tempered by concerns about UK wage growth and potential impacts of monetary policy changes.
US Dollar Weakens Amid Fed Rate-Cut Speculation and Upcoming FOMC Minutes
On the US front, the broad-based US dollar has found temporary support around 101.30, following its recent decline.
This weakness is largely due to market speculation that the Fed will initiate rate cuts in September.
Investors are eagerly awaiting the Federal Open Market Committee (FOMC) minutes from the July meeting, set for release at 18:00 GMT, to gain further insights into the Fed's policy direction.
The Fed had maintained its key rates at 5.25%-5.50% but highlighted economic uncertainties that could influence future decisions.
It should be noted that the CME Group's FedWatch Tool shows a 70% chance of a rate cut, with a Reuters poll suggesting the Fed might reduce rates by 25 basis points at each of the remaining three meetings in 2024. However, Fed Governor Michelle Bowman cautions that inflation remains above the 2% target.
Mixed Economic Signals in the UK Raise Questions on BoE Rate Cuts
On the UK side, recent economic data shows mixed signals. UK wage growth has declined to 4.5% in the three months ending July, down from the previous 5%.
This decrease reflects lower inflation pressures, adding to speculation that the Bank of England (BoE) may cut rates in September.
Additionally, the UK's Consumer Price Index (CPI) report for July revealed a core inflation rate of 3.3%, and service sector inflation fell to 5.2%.
Despite these factors, the BoE remains cautious about rate cuts due to persistent inflation in the service sector.
The upcoming S&P Global Purchasing Managers' Index (PMI) data for August, scheduled for release on Thursday, is expected to show a steady Manufacturing PMI at 52.1 and an improved Services PMI at 52.8.
Therefore, the mixed economic signals from the UK, including declining wage growth and inflation, create uncertainty for the GBP/USD pair.
While speculation about BoE rate cuts might support the pound, persistent inflation concerns could limit gains and keep the pair volatile.
GBP/USD - Technical Analysis
GBP/USD is currently trading at $1.30261, down by 0.03% as the pair hovers around its immediate support levels.
The 4-hour chart indicates that the pivot point is set at $1.3040, which is critical for determining the next direction. Immediate resistance is at $1.3097, followed by $1.3133 and $1.3174.
On the downside, the immediate support lies at $1.2978, with additional support at $1.2933 and $1.2887.
The Relative Strength Index (RSI) is currently at 75, suggesting that GBP/USD is in overbought territory, which might trigger a pullback.
Meanwhile, the 50-day Exponential Moving Average (EMA) is at $1.2872, reinforcing the bearish outlook if the pair fails to break above its pivot point.
Given the overbought RSI and the resistance levels ahead, there’s a good chance we could see some selling pressure emerge.
If the pair fails to maintain its position above $1.3040, a bearish correction might ensue, driving the price towards the next support levels.
Conclusion: Selling below $1.30398 could be a strategic move, with a target profit at $1.29802 and a stop loss at $1.30911.
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