GBP/USD Price Analysis – Jan 01, 2025
Daily Price Outlook
During the European trading session on Wednesday, the GBP/USD pair continued its upward momentum, trading around the 1.2523 level, with an intra-day high of 1.2526. This recent rise in the pair can be mainly attributed to a weaker US Dollar (USD), driven by lower US Treasury yields.
Meanwhile, the British Pound (GBP) might face some challenges ahead, especially given the ongoing geopolitical tensions. The Russia-Ukraine conflict and the rising uncertainties in the Middle East are keeping traders cautious.
On top of that, the Pound came under pressure as market participants slightly ramped up their bets on a more dovish Bank of England (BoE) stance for 2025. These factors may challenge the bullish trend for GBP in the near term.
US Dollar Weakness Supports GBP/USD Strength Amid Fed Caution and Lower Treasury Yields
On the US front, the broad-based US Dollar has been under pressure recently. This weakness comes as US Treasury bond yields have dropped by about 2%, with the 2-year and 10-year yields standing at 4.24% and 4.53%, respectively.
The decline in yields has made the US Dollar less attractive to investors, contributing to its subdued performance.
In addition, the Federal Reserve has signaled that it may take a more cautious approach to rate cuts in 2025. This shift in the Fed’s policy outlook adds more uncertainty, as investors are unsure about the direction of future monetary moves.
These factors have contributed to a weaker US Dollar, which in turn has supported the recent rise in other currencies like the British Pound.
Meanwhile, the ongoing uncertainty about future economic strategies, especially with the potential changes under the incoming Trump administration, is adding to the overall volatility in the markets.
Therefore, the weakness of the US Dollar, driven by lower Treasury yields and the Fed's cautious stance on rate cuts, has supported the GBP/USD pair. This has allowed the British Pound to strengthen against the Dollar, driving the pair higher.
British Pound Under Pressure Amid BoE Rate Cut Expectations and Geopolitical Risks
On the flip side, the British Pound has faced some pressure due to traders adjusting their expectations about the Bank of England’s (BoE) policy in 2025. Market predictions now suggest a potential interest rate cut of 53 basis points next year, slightly higher than the 46 basis points expected after the BoE’s December 19 policy meeting.
At that time, the BoE decided to keep rates steady at 4.75%, with a 6-3 vote split. This change in expectations reflects concerns about the UK economy, which could weigh on the Pound in the future.
Moreover, the risk-sensitive Pound faces further challenges due to rising geopolitical tensions. The ongoing Russia-Ukraine conflict and the instability in the Middle East, particularly the situation in Israel and Yemen, are increasing global uncertainty.
Israel’s warning to Yemen on Monday further escalated concerns, adding to the volatility in the markets. These geopolitical risks could negatively affect the Pound, as investors tend to avoid riskier assets in uncertain times, putting pressure on GBP.
GBP/USD – Technical Analysis
GBP/USD is trading at $1.25048, down 0.30% as bearish momentum persists in the market. On the 4-hour chart, the pivot point at $1.25431 serves as a critical threshold for price action, with immediate resistance at $1.26068.
Further resistance levels are observed at $1.26586 and $1.27292, marking potential upside targets if sentiment shifts. On the downside, support is located at $1.24776, with additional levels at $1.24302 and $1.23889 providing safety nets against extended declines.
Technical indicators reflect bearish sentiment. The RSI stands at 38, signaling mildly oversold conditions that could prompt a corrective rebound. However, the pair is trading below its 50 EMA at $1.25438, reinforcing a bearish bias in the short term.
A decisive break below the $1.24776 support level could pave the way for deeper losses, potentially targeting $1.24302. Conversely, reclaiming the pivot point and breaking above $1.26068 resistance may reignite bullish momentum.
Traders should monitor the $1.25431 pivot point closely, as sustained trading below this level suggests continued downward pressure.
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