GBP/USD Price Analysis – July 31, 2024
Daily Price Outlook
During the European trading session, the GBP/USD currency pair failed to gain any strong bullish traction and remained subdued around the 1.2835 level, hitting an intra-day low of 1.2820. The subdued trend can be attributed to expectations that the BoE will reduce interest rates in its August meeting for the first time since March 2020.
This anticipation has undermined the GBP and contributed to the GBP/USD pair's losses. However, the bearish US dollar, pressured by expectations for the Fed to begin reducing interest rates, has helped limit the GBP/USD pair's losses.
GBP Weakens on BoE Rate Cut Expectations, but USD Outlook Limits Losses
On the BoE front, the British currency has fallen against most major peers as investors anticipate the BoE might cut interest rates in August for the first time since March 2020. The BoE has maintained a tight monetary policy since December 2021 to combat inflation driven by pandemic-related stimulus.
Market experts believe a 25 basis point cut is challenging, as policymakers are cautious due to high service sector inflation.
On the data front, the UK's annual service inflation reached 5.7% in June, exceeding the BoE’s forecast of 5.1% and doubling the level needed to justify rate cuts. Despite growing expectations for a rate cut, the BoE is unlikely to commit to a clear policy change due to strong wage growth momentum.
Therefore, the anticipated BoE rate cut has weakened the GBP against most major currencies, including the USD. Despite this, the GBP/USD pair's losses are limited by a bearish USD outlook.
GBP/USD Decline Despite USD Weakness and Anticipated Fed Rate Cut
Despite the weakness in the US dollar, the GBP/USD pair is falling, indicating strong selling pressure on the British currency.
The US Dollar Index (DXY), which measures the Greenback against six major currencies, has dropped 0.2% to 104.20 as investors await the Federal Reserve’s (Fed) monetary policy decision, scheduled for 18:00 GMT.
However, the Fed is expected to keep interest rates unchanged at 5.25%-5.50% for the eighth consecutive meeting since July 2023.
However, investors are closely monitoring for signals of future rate cuts. According to the CME FedWatch Tool, a 25 basis point rate cut in September is already anticipated, driven by improved inflation data and moderating labor market conditions.
Despite the weakness of the USD, the GBP/USD pair is declining due to significant selling pressure on the GBP. The anticipated Fed rate cut in September is further exacerbating the GBP’s challenges.
GBP/USD - Technical Analysis
GBP/USD is trading at $1.28266, down 0.06% on the day. The 4-hour chart reveals a bearish trend, with the pair trading below the pivot point at $1.28448. Immediate resistance is located at $1.28885, followed by $1.29327 and $1.29865.
On the downside, immediate support is seen at $1.27819, with further support levels at $1.27566 and $1.27351.
Technical indicators support the bearish sentiment. The Relative Strength Index (RSI) is at 40, indicating that the pair is approaching oversold conditions but still has room for further declines.
The 50-day Exponential Moving Average (EMA) is at $1.28853, reinforcing the bearish outlook as long as the price remains below this level.
The recommended trade setup is a buy limit at $1.28190, with a take profit target at $1.28958 and a stop loss at $1.27792. This setup provides a balanced risk-to-reward ratio, allowing for potential gains while managing downside risk effectively.
The overall technical perspective for GBP/USD remains bearish below the pivot point at $1.28448. A move above immediate resistance at $1.28885 could indicate a shift towards a bullish trend, targeting higher resistance levels.
However, failure to hold above the immediate support at $1.27819 might lead to further declines, targeting the next support levels at $1.27566 and $1.27351.
In conclusion, the technical outlook for GBP/USD suggests continued bearish momentum below $1.28448.
Related News
EUR/USD Price Analysis – July 31, 2024
JOIN LONGHORNFX TODAY
24/7 live support, lightning fast withdrawals, guaranteed safe and reliable trading platforms with a true ECN broker.