GBP/USD Price Analysis – Oct 07, 2024
Daily Price Outlook
During the European trading session, the GBP/USD currency pair failed to stop its bearish trend and remained well offered around the 1.3068 level, hitting an intraday low of 1.3062. However, the reason behind its current downfall could be the bullish US dollar, which gained traction on the back of robust growth in the United States (US) Nonfarm Payrolls (NFP) for September.
The surprisingly positive labor market figures prompted traders to reassess their positions, leading to a reduction in bets on a 50 basis point rate cut by the Federal Reserve (Fed) in November. This shift has supported the US dollar and contributed to the GBP/USD pair's losses. Meanwhile, growing expectations of another interest rate cut by the Bank of England (BoE) in November have further weighed on the GBP/USD currency pair.
Looking ahead, investors will closely monitor the US Consumer Price Index (CPI) data for September, set to be released on Thursday. This inflation data will offer critical insights into the Federal Reserve’s potential interest rate decisions for November.
US Dollar Strengthens on Robust Labor Data, Pressuring GBP/USD
On the US front, the US dollar maintained its upward trend and remain well bid near a seven-week high, thanks to strong Nonfarm Payrolls (NFP) data for September, which showed that the US economy added 254,000 jobs, the highest since March. The unemployment rate also dropped to 4.1%, and wage growth was strong at 4% year-over-year.
However, the strong labor market data has reduced expectations for a large Federal Reserve rate cut in November. Initially, traders were expecting a 50 basis point (bps) rate cut, but now that probability has been wiped out. Instead, a smaller 25 bps cut is anticipated. Chicago Fed Bank President Austan Goolsbee praised the report, saying it was "superb" and expressed confidence that if similar reports continue, the US is nearing full employment.
This strong US labor data and reduced expectations for a large Fed rate cut have pressured the GBP/USD pair, boosting the US Dollar and causing the British Pound to weaken further.
Pound Sterling Weakness Pressures GBP/USD Amid Geopolitical Tensions and Rate Cut Expectations
On the other hand, the Pound Sterling is starting the week on the bearish note against its major peers. This is mainly due to rising tensions between Iran and Israel, which have worsened market sentiment. Israel increased strikes in Beirut after its Prime Minister vowed to win, and these tensions have raised concerns about disruptions in oil supplies, pushing energy prices higher. This could result in increased foreign outflows from oil-importing countries, putting more pressure on the cable currency.
Moreover, the increasing expectations of Bank of England (BoE) interest rate cut in November are weighing on the GBP and contributed to the GBP/USD pair losses. Last week, BoE Governor Andrew Bailey hinted that the bank might act more aggressively to cut rates if inflation continues to fall.
However, BoE Chief Economist Huw Pill urged caution, suggesting that rate cuts should be gradual to avoid cutting too far or too fast. This week, key economic data such as the monthly GDP and factory data for August, set to be released on Friday, will be crucial for the Pound Sterling’s performance.
Therefore, the Pound Sterling's weakness, driven by geopolitical tensions and expectations of a Bank of England rate cut, is likely to put further downward pressure on the GBP/USD pair, making the US Dollar stronger as market sentiment remains cautious.
GBP/USD - Technical Analysis
The GBP/USD pair has shown marginal gains, trading at 1.31157, up 0.03% in the 4-hour timeframe. The pair remains in a consolidation phase as it struggles to sustain any significant momentum above the 1.3135 pivot point. Despite modest gains, the technical picture remains skewed towards the downside, with the British Pound under pressure amid a stronger U.S. dollar and concerns over the UK’s economic outlook.
On the technical front, the 50-day Exponential Moving Average (EMA) at 1.3205 acts as a critical resistance level, with the Relative Strength Index (RSI) reading at 39, signaling bearish sentiment. Immediate resistance for the pair is seen at 1.3174, followed by 1.3216 and 1.3251. If the pair manages to break above these levels, it may signal a reversal in trend. However, with the RSI below 50, a continuation of the downtrend is more likely.
On the downside, immediate support sits at 1.3071, followed by stronger support levels at 1.3037 and 1.3003. A break below the 1.3071 mark could accelerate bearish momentum and open the door for further declines towards the 1.3000 psychological level.
Conclusion: With the RSI signaling a bearish bias and the pair trading below the 50 EMA, a sell-off below 1.31350 is recommended. The take-profit target is set at 1.30700, while a stop loss at 1.31750 limits risk.
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