GBP/USD Price Analysis – Feb 28, 2024

Daily Price Outlook

The GBP/USD currency pair continued its downward trend around the 1.2660 level due to various factors, including a strong US dollar and a dovish stance from the Bank of England (BoE). These factors weakened the GBP and contributed to the pair's losses. However, recent disappointing US economic data could limit the dollar's gains, potentially helping the GBP/USD pair stabilize. Investors are now focused on the upcoming US GDP growth figure for the fourth quarter, which will be released later today.

GBP Faces Challenges Amid BoE's Inflation Concerns and Expected Rate Cuts

On the UK front, Bank of England (BoE) Deputy Governor Dave Ramsden recently stated that inflation pressures persist. He expressed the need for more data to assess the duration of these pressures before considering changes to BoE's policy. The BoE forecasts inflation to return to its 2% target in the second quarter of 2024 but anticipates it may rise to approximately 2.75% later this year. Financial markets anticipate the UK central bank to commence interest rate reductions in August.

Consequently, the outlook suggests potential challenges for the GBP currency. Persistent inflation pressures and the likelihood of BoE interest rate cuts could exert downward pressure on the GBP in the near term.

Challenges for GBP Amid Inflation Concerns and Expected BoE Interest Rate Cuts

On the US front, the Federal Reserve is adopting a cautious approach, signaling a delay in interest rate cuts despite market expectations. However, the recent meeting minutes and official comments suggest they are not in a rush to lower rates. This stance typically strengthens the US dollar and lower GBP/USD currency pair. Nevertheless, declining bond yields and disappointing Durable Goods Orders could provide some support to the GBP/USD pair by undermining the US dollar.

On the data front, January's Durable Goods Orders showed a larger-than-expected decline of 6.1%, while orders excluding defense met expectations with a slight increase of 0.1%. The Consumer Confidence Index for January was below market consensus at 106.7, indicating slightly lower consumer sentiment than anticipated. Looking ahead, the US Personal Consumption Expenditure Index (PCE) for January is expected to increase by 0.3% from December.

Therefore, the Federal Reserve's cautious stance tends to strengthen the US dollar, potentially lowering the GBP/USD pair. Conversely, the larger-than-expected decline in Durable Goods Orders and lower Consumer Confidence Index could weaken the US dollar. However, a potential increase in the Personal Consumption Expenditure Index may provide some support.

GBP/USD - Technical Analysis

The GBP/USD pair is currently navigating a downward trajectory, with a 0.19% decrease observed, positioning the pair at 1.26658. This movement reflects the market's apprehensive sentiment as investors assess the currency's direction amidst fluctuating economic indicators and geopolitical developments. The day's pivot point is established at 1.2651, offering a critical juncture that could determine the pair's short-term momentum.

Resistance levels are staged at 1.2699, 1.2729, and 1.2772, delineating potential challenges for upward price movements. On the contrary, immediate support appears at 1.2613, with subsequent levels at 1.2567 and 1.2530, which could provide a cushion against further declines.

The Relative Strength Index (RSI) stands at a neutral 50, indicating a balance between buyers and sellers, yet the break below the upward trendline hints at possible intensified selling pressure. This technical breach underscores the necessity for traders to monitor these critical levels closely.

Considering the present technical indicators and market dynamics, a bearish perspective is advised for the GBP/USD pair. Traders might consider a selling strategy below 1.26608, with a take profit target set at 1.26139 and a stop loss at 1.26978, to navigate the anticipated market movements effectively.