GBP/USD Price Analysis – Aug 26, 2024
Daily Price Outlook
During the European trading session, the GBP/USD currency pair maintained its upward trend and remained well bid around the 1.3225 level.
This bullish momentum is primarily driven by dovish comments from Federal Reserve (Fed) Chair Jerome Powell regarding interest rates. These remarks undermine the US dollar and contribute to the GBP/USD pair’s gains.
Powell's comments at the Jackson Hole Symposium suggest that the Fed is considering rate cuts, reflecting concerns over the US labor market's downside risks.
Fed Rate Cut Expectations and Economic Data Impact on GBP/USD
Jerome Powell, the Fed Chair, hinted that the central bank might cut interest rates to support the labor market and keep inflation around 2%.
However, he didn’t specify when these cuts might occur, stating that the decision will depend on future economic data.
This lack of clear guidance has weakened the US dollar. As a result, the Pound Sterling (GBP) has strengthened against the US Dollar (USD), pushing the GBP/USD exchange rate higher.
In simple terms, the uncertainty about the Fed’s next moves has made the USD less valuable, benefiting the GBP.
On the US front, the US Dollar Index (DXY), which measures the USD against six major currencies, recently hit a new year-to-date low of 100.53.
Investors are awaiting crucial economic data this week, including the July core Personal Consumption Expenditure (PCE) Price Index and Durable Goods Orders.
These releases will be pivotal in shaping expectations for Fed policy and, consequently, influencing the GBP/USD movement.
Bank of England’s Cautious Approach Bolsters Pound Amid Rate Cut Speculation
On the BoE front, the Pound Sterling is performing well against its major peers at the start of the week.
The British currency is gaining strength because the Bank of England (BoE) is cautious about planning rate cuts too soon, given that inflation in the UK is still a concern.
BoE Governor Andrew Bailey indicated at the Jackson Hole Symposium that while inflation pressures may be less severe than expected, the BoE should not rush to cut interest rates. He emphasized the need to be careful not to lower rates too quickly or too much.
This week, market speculation about future BoE rate cuts will guide the Pound Sterling, as there is no major economic data expected from the UK.
Currently, traders anticipate one more rate cut from the BoE this year. Although the BoE did cut rates on August 1, recent positive economic data, like the stronger-than-expected flash S&P Global/CIPS PMI for August, has lessened the likelihood of another rate cut in September.
GBP/USD - Technical Analysis
The British Pound (GBP) is currently trading at $1.31995 against the US Dollar (USD), reflecting a slight decline of 0.14% in today’s session.
On the 4-hour chart, GBP/USD is flirting with the critical pivot point at $1.3220, which has been a key level of interest for traders.
The currency pair’s recent price action suggests that the market is at a crossroads, with potential for both upward and downward movement depending on how it interacts with this pivot.
The Relative Strength Index (RSI) is hovering around 73, indicating that the pair is nearing overbought territory.
This elevated RSI suggests that the upward momentum may be losing steam, making it increasingly likely that we could see a pullback.
However, as long as GBP/USD stays above the 50-day Exponential Moving Average (EMA), currently positioned at $1.3092, the broader uptrend remains intact.
Resistance levels to watch include $1.3255 as the immediate barrier, followed by $1.3299 and $1.3340. A break above these levels could reinvigorate the bullish trend, pushing the pair toward new highs.
On the downside, immediate support is found at $1.3165, with further support at $1.3121 and $1.3078.
A breach of $1.3165 could trigger a more pronounced sell-off, potentially bringing the pair back down to test the lower support levels.
Conclusion: The market remains cautiously optimistic but is showing signs of overextension.
Traders might consider selling below the $1.3220 pivot point, aiming for a take profit around $1.3165 and setting a stop loss near $1.3255. Keep an eye on the RSI and the 50 EMA for any shifts in momentum.
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