GBP/USD Price Analysis – July 24, 2024

Daily Price Outlook

Despite the upbeat PMI data, the GBP/USD currency pair failed to gain positive traction and remained under pressure around the 1.2904 level, hitting an intra-day low of 1.2876.

The downward rally can be attributed to high service sector inflation and concerns over the potential impact of the Bank of England's restrictive monetary policy.

Moreover, the renewed strength of the US dollar, supported by recent developments in the US presidential elections, was another key factor putting pressure on the GBP/USD pair.

In contrast, growing expectations that the Federal Reserve may begin a rate-cutting cycle in September could cap gains in the US dollar and help the GBP/USD pair limit its losses.

US Dollar Strengthens Amid Election Speculation and Economic Data

On the US front, the broad-based US dollar regained its bullish traction and edged higher near a weekly high at around 104.50.

This strength is partly due to investor interest ahead of the US presidential elections in November, with market experts predicting a win for Donald Trump despite the Democratic nomination of Vice President Kamala Harris.

Additionally, the US dollar's performance is influenced by the anticipation of significant upcoming economic data releases.

On the data front, investors are closely watching the preliminary US S&P Global PMI data for July, expected to show modest expansion in both manufacturing and services.

The main triggers for the US dollar this week will be the preliminary Q2 GDP and the Personal Consumption Expenditures Price Index (PCE) data, scheduled for Thursday and Friday. The US economy is projected to have grown by 1.9%, up from the previous 1.4%.

Investors are particularly interested in the core PCE inflation, the Federal Reserve’s preferred inflation measure, to gauge the timeline for potential interest rate cuts, which markets currently expect to begin in September.

Therefore the stronger US Dollar, buoyed by positive economic data and election developments, puts pressure on the GBP/USD pair. Despite the UK's upbeat PMI data, the pair may face downward pressure due to the contrasting economic outlooks and potential Fed rate cuts.

GBP/USD Pair Faces Pressure Amid BoE Rate Cut Speculation and High Service Sector Inflation

However, the decline in the GBP/USD pair is linked to growing speculation that the Bank of England (BoE) will begin cutting interest rates in August. Market experts believe the UK economy is struggling under the BoE's high interest rates, significantly impacting household spending.

This concern is highlighted by the faster-than-expected contraction in UK Retail Sales, a key measure of consumer spending, in June. Despite this, BoE officials are hesitant to endorse rate cuts due to persistently high service sector inflation, which grew steadily by 5.7% in June.

On the data front, the Composite PMI for July came in higher at 52.7, surpassing estimates of 52.6 and the previous release of 52.3, thanks to increased activities in both manufacturing and service sectors.

The Manufacturing PMI rose to 51.8 and the Services PMI to 52.4, both outperforming their previous readings.

Despite the upbeat PMI data, the GBP/USD pair faces pressure. The stronger US Dollar and speculation about Bank of England rate cuts amid high UK service inflation contribute to a potential downward trend for the GBP/USD pair.

GBP/USD - Technical Analysis

The GBP/USD pair is currently trading at $1.2884, reflecting the latest market movements. On the 4-hour chart, the key technical levels are crucial for understanding potential price action. The pivot point is set at $1.2901, serving as a central level around which the price may fluctuate.

Immediate resistance levels are identified at $1.2942, $1.2988, and $1.3033. These levels represent potential selling points where the market may face resistance if it attempts to rise.

On the downside, immediate support levels are marked at $1.2838, $1.2782, and $1.2735. These support levels are vital as they indicate potential areas where buying interest could emerge, preventing further declines.

The Relative Strength Index (RSI) is currently at 32, indicating that the market is nearing oversold conditions. This suggests that the GBP/USD pair may experience a bounce if buyers step in at lower levels.

The 50-day Exponential Moving Average (EMA) is at $1.2951, acting as a dynamic resistance level that traders should watch closely.

Given the current technical setup, the recommendation is to sell below $1.29072. The take profit level is set at $1.28381, providing a reasonable target for downside movements. A stop loss at $1.29510 is advised to manage risk, protecting against potential upward reversals.

In conclusion, the technical outlook for GBP/USD suggests a bearish sentiment below the pivot point of $1.2901.

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