GBP/USD Price Analysis – Aug 28, 2024
Daily Price Outlook
Despite expectations that the Bank of England (BoE) will cut interest rates more slowly than other central banks, the GBP/USD currency pair continued its losing streak, trading around 1.3218 and hitting an intra-day low of 1.3214.
This decline is largely due to the US Dollar recovering some ground, with investors focusing on the upcoming US core Personal Consumption Expenditure (PCE) Price Index data for July, scheduled for release on Friday.
Although the US Dollar has recently gained, its near-term outlook remains bearish as investors anticipate the Federal Reserve will reduce interest rates in its September meeting.
Conversely, the GBP/USD pair might trade sideways as investors await more clarity on the Bank of England’s future rate decisions.
The recent 25 basis points rate cut to 5% indicates a shift from a restrictive policy stance, reflecting confidence in achieving the 2% inflation target.
Impact of US Economic Data and Federal Reserve Expectations on GBP/USD
On the US front, the GBP/USD pair has fallen as the US Dollar regains strength. Investors are awaiting the core Personal Consumption Expenditure (PCE) data for July, due for release on Friday, which could have a notable impact on the pair.
The US Dollar Index (DXY) has attracted buying interest after reaching a new year-to-date low of 100.50.
Despite this recovery, the short-term outlook for the US Dollar remains uncertain as investors are anticipating a Federal Reserve rate cut in September, but opinions differ on the magnitude.
However, the CME FedWatch tool indicates a 34.5% chance of a 50-basis point cut, while most expect a 25-basis point reduction.
Economists forecast a slight increase in core PCE inflation to 2.7%, which could impact the Fed's decision and influence market speculation regarding future rate cuts.
Impact of BoE's Rate Decisions and Economic Outlook on GBP/USD
On the BoE front, the Pound Sterling is showing mixed performance against major currencies as investors await new information about interest rates.
The BoE recently cut rates by 25 basis points to 5%, ending a long period of high rates, and is confident it can bring inflation down to its 2% target.
The expectation is that the BoE will reduce rates more slowly than other central banks because the UK economy remains strong, supported by recent positive economic data.
Investors are looking for more guidance from BoE policymaker Catherine Mann’s upcoming speech at 12:15 GMT.
Mann had previously voted to keep rates steady at 5.25%, and her comments may provide insights into future rate cuts and inflation expectations.
Additionally, UK Prime Minister Keir Starmer’s remarks about a tighter fiscal budget, aiming for long-term benefits despite short-term tax increases, have bolstered the Pound’s appeal.
Therefore, the mixed performance of the GBP/USD pair reflects uncertainty as investors await further guidance on interest rates.
The BoE’s slower rate cuts and positive economic data may support the Pound, while upcoming comments from BoE policymaker Mann and fiscal budget details will also influence GBP/USD.
GBP/USD - Technical Analysis
The British Pound (GBP/USD) is currently trading at $1.32197, down 0.11% as the pair consolidates within a tight range on the 4-hour chart.
The pair is exhibiting some signs of resilience despite the modest pullback, with the price hovering near the immediate support level at $1.3149.
This level has proven to be a key short-term support and could be crucial in determining the next directional move.
On the upside, immediate resistance is seen at $1.3265, closely aligned with the pivot point at $1.3263. A break above this resistance could open the door for further gains towards the next resistance levels at $1.3299 and $1.3333.
These levels have acted as barriers in recent sessions, and overcoming them could signify a stronger bullish trend.
The Relative Strength Index (RSI) stands at 63, indicating that the market is still in a bullish phase but approaching overbought territory.
This suggests that while there is room for further upside, traders should be cautious of a potential pullback.
The 50-day Exponential Moving Average (EMA) at $1.3086 is currently providing strong support, reinforcing the overall uptrend.
Given the current setup, a buy limit order at $1.31920 could offer a favorable risk-reward ratio. The target would be the pivot point at $1.3263, with a stop loss at $1.31578 to protect against downside risks.
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