GBP/USD Price Analysis – Oct 02, 2024
Daily Price Outlook
Despite a bullish US dollar, the GBP/USD pair is struggling to maintain its upward momentum, though it’s still trading positively around 1.3291, with an intra-day high of 1.3306. The recent gains in the pair can be attributed to the Bank of England's reassurance regarding financial stability, highlighting the resilience of households and businesses despite high interest rates, as well as the robust position of the UK banking system, which has bolstered investor confidence.
However, the pair's upside potential may be constrained by concerns that a consumption-driven recovery could trigger inflation, especially as the Bank of England is anticipated to cut rates in the near future.
Conversely, the US dollar has gained support following recent comments from Federal Reserve Chairman Jerome Powell, who signaled that the central bank intends to gradually lower interest rates over time. Additionally, the dollar is bolstered by a robust labor market, which further restricts the GBP/USD pair's potential for significant gains.
Impact of Bank of England's Financial Outlook on GBP/USD Pair
On the GBP front, the Bank of England's Financial Policy Committee (FPC) recently reported that risks to the UK’s financial stability have remained largely unchanged since June. They noted that valuations of equities and other assets are "stretched," suggesting a potential for sharp corrections. However, the survey also indicated that a record number of financial firms are concerned about geopolitical risks.
Despite these challenges, the BoE has maintained a counter-cyclical capital buffer at 2%, ensuring that the UK banking system is well-positioned to support lending. While households and corporate borrowers exhibit resilience to high interest rates, some small businesses and private equity-backed firms continue to experience pressure.
Besides this, BoE policymaker Megan Greene cautioned that a recovery driven by consumer spending could lead to renewed inflation. However, she noted that further interest rate cuts are likely, as prices are trending in the right direction. Greene mentioned that the neutral interest rate has likely increased since the inflation shock, although she didn’t provide a specific figure.
Traders will be watching the upcoming US ADP Employment Change report and comments from Federal Reserve officials for insights, while the BoE's Monetary Policy Report Hearings on Thursday will also be closely monitored for guidance.
Therefore, the Bank of England's cautious stance on financial stability and potential interest rate cuts may weaken the GBP against the USD. If inflation concerns persist, traders might anticipate further rate adjustments, leading to increased volatility in the GBP/USD pair.
Impact of Federal Reserve's Stance on GBP/USD Pair
On the US front, the US dollar is getting stronger because Federal Reserve Chairman Jerome Powell said the central bank will slowly lower interest rates. He clarified that the recent half-point cut doesn’t mean there will be big cuts soon; instead, future cuts will be smaller. The US dollar is also supported by a strong job market, as shown by a report that job openings increased unexpectedly to 8.04 million in August. This means more people are needed for jobs, which is a good sign for the economy.
Furthermore, the Institute for Supply Management (ISM) reported that the Manufacturing PMI remained steady at 47.2 in September, indicating a continued contraction in business activity for the sixth month in a row.
Investors are closely monitoring the potential for further interest rate cuts by the Federal Reserve. While Chairman Powell hinted at the possibility of two additional cuts of 25 basis points each this year, speculation persists regarding a larger 50 basis point cut in November, with the CME Group's FedWatch Tool indicating a 35% probability for this scenario.
Therefore, the US Dollar's strength, driven by Powell's comments on gradual interest rate cuts and a resilient labor market, weaken the GBP/USD pair. If the Fed maintains a hawkish stance, it could further pressure the GBP against the USD.
GBP/USD - Technical Analysis
GBP/USD is currently trading at $1.32756, down 0.07% for the day, reflecting bearish sentiment amid concerns over potential interest rate decisions by the Bank of England (BoE). The pair has been under pressure since failing to sustain above the 50-day Exponential Moving Average (EMA) at $1.33647, a critical resistance that capped recent bullish attempts. The Relative Strength Index (RSI) stands at 34, indicating weak momentum, but not yet oversold, suggesting room for further declines.
On the downside, immediate support is seen at $1.32724, closely followed by $1.32368 and $1.32084. If the pair breaks below these levels, it could trigger additional selling pressure, pushing GBP/USD further down.
Conversely, on the upside, the pivot point at $1.32951 will be crucial for the pair to reclaim a bullish bias. Immediate resistance is pegged at $1.33299, with subsequent resistance levels at $1.33569 and $1.33889. A sustained break above these levels would indicate renewed bullish momentum.
The 50-day EMA at $1.33647 remains a key barrier for GBP/USD. If the pair can rise above this level, it would signal a potential trend reversal. Until then, the outlook remains cautiously bearish.
The pair remains under bearish pressure, with an entry above $1.32722 offering potential profit at $1.33299. Monitor resistance at $1.33299 for signs of a bullish reversal.
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