GBP/USD Price Analysis – July 29, 2024
Daily Price Outlook
Despite the bearish US dollar and expectations of a September Fed rate cut, the GBP/USD currency pair failed to stop its losing streak and remained well offered around the 1.2839 level, hitting an intra-day low of 1.2807.
The downward trend can be attributed to the expectation that the Bank of England (BoE) will cut its interest rates by 25 basis points (bps) to 5%. This expectation undermined the GBP currency and contributed to the GBP/USD pair's losses.
Additionally, renewed strength in the US dollar, supported by uncertainty ahead of the Federal Reserve’s (Fed) monetary policy announcement, was another key factor putting pressure on the GBP/USD currency pair.
Looking ahead, traders are likely to remain cautious as they await the results of the two-day Federal Open Market Committee (FOMC) meeting, which concludes on Wednesday. This meeting, along with key US macroeconomic data, including the Nonfarm Payrolls (NFP) report at the start of the month, could provide new direction for the commodity.
BoE Rate Cut Anticipation and Service Sector Inflation Likely to Weaken GBP/USD
On the BoE front, the British currency weakens as the Bank of England prepares for its monetary policy meeting on Thursday. The BoE is expected to cut interest rates by 25 basis points to 5%, marking its first rate cut in over four years.
This decision comes after central banks shifted to restrictive policies to address inflated markets during the pandemic. Despite annual headline inflation returning to the target rate of 2%, high inflation in the service sector remains a concern.
Market experts worry that this rate cut might be challenging due to persistent service sector inflation.
Additionally, UK Prime Minister Keir Starmer's absolute majority has improved the economic outlook, with anticipated growth in manufacturing and services possibly leading to higher input prices. This could reignite price pressures and impact the currency further.
Therefore, the BoE's anticipated rate cut and persistent service sector inflation could weaken GBP/USD. Despite a positive economic outlook under Starmer, higher input prices may renew price pressures on the currency.
US Dollar Strength and Fed Rate Decision Pressure GBP/USD to Two-Week Low
On the US front, the broad-based US dollar regained traction and edged higher, pushing the Pound Sterling to a two-week low near 1.2810 against the US Dollar (USD). This comes as the market awaits the Federal Reserve's (Fed) monetary policy announcement on Wednesday.
The US Dollar Index (DXY) rose to 104.50 as investors brace for the Fed to maintain interest rates unchanged at 5.25%-5.50% for the eighth consecutive time.
Market watchers will closely examine Fed Chair Jerome Powell's statement and press conference for hints on potential rate cuts, as the Fed might acknowledge progress in reducing inflation and rising labor market risks.
Additionally, upcoming US economic data, including JOLTS Job Openings, ADP Employment Change, ISM Manufacturing PMI, and July’s Nonfarm Payrolls, will be scrutinized for further insights.
Therefore, the strengthening US dollar and the Federal Reserve's expected rate hold are pressuring the GBP/USD pair, pushing it to a two-week low as market participants anticipate future rate cuts.
GBP/USD - Technical Analysis
GBP/USD is currently trading at $1.28171, up 0.07% on a 4-hour chart. The pivot point is set at $1.2852, marking a significant level to watch. Immediate resistance levels are $1.2889, $1.2933, and $1.2987. On the downside, immediate support is at $1.2782, followed by $1.2757 and $1.2735.
The Relative Strength Index (RSI) is at 31, indicating that the pair is nearing oversold conditions. This could suggest a potential reversal or a period of consolidation before any significant movement.
The 50-day Exponential Moving Average (EMA) stands at $1.2920, which provides a higher resistance level. If GBP/USD moves above this EMA, it could signal a stronger bullish trend. Conversely, staying below this EMA suggests continued bearish pressure.
Given the current technical indicators, the outlook for GBP/USD remains cautious. The RSI indicates potential oversold conditions, which may lead to a temporary bounce or consolidation. However, traders should be prepared for further downside if key support levels are breached.
For traders, a strategic approach would be to consider selling below the pivot point of $1.2852, with a target take profit level at $1.2782. To manage risk, a stop loss should be placed at $1.2889. This setup aims to capitalize on the prevailing bearish sentiment while acknowledging the possibility of a short-term reversal due to the oversold RSI.
In conclusion, GBP/USD is under bearish pressure, with key levels dictating its next moves.
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