GBP/USD Price Analysis – Oct 16, 2024
Daily Price Outlook
During the European trading session, the GBP/USD currency pair extended its downward slide, facing significant selling pressure. This came after the UK’s Office for National Statistics (ONS) released a weaker-than-expected Consumer Price Index (CPI) report for September, adding to concerns about the UK economy.
At the same time, the US Dollar remained strong, hovering near a two-month high, as traders factored in the possibility of only moderate rate cuts from the Federal Reserve (Fed) later this year. These combined factors weighed heavily on the GBP/USD pair.
Looking ahead, market participants will be closely watching Thursday’s release of the US Retail Sales data for September. The report, which is a key indicator of consumer spending, is projected to show a 0.3% increase.
GBP/USD Declines as Weak Inflation Data Fuels Rate Cut Expectations
As we mentioned, the GBP/USD pair is facing heavy selling pressure after the UK Office for National Statistics (ONS) released a weaker-than-expected Consumer Price Index (CPI) report for September. The annual headline inflation rate dropped to 1.7%, falling short of the anticipated 1.9% and down from 2.2% in August.
Month-on-month inflation stayed flat, while core CPI inflation, which excludes volatile items like food and energy, also decreased faster than expected to 3.2%, below the 3.4% estimate. Services inflation, a key focus for the Bank of England (BoE), slowed to 4.9% from 5.6%.
This significant drop in inflation is increasing expectations that the BoE will cut interest rates in its upcoming policy meetings in November or December, possibly by 25 basis points. A slowdown in wage growth, which rose by 4.9% in the three months ending in August—the slowest in two years—also contributed to the market's belief that inflationary pressures will ease further. Market participants are now more confident that the BoE will move toward rate cuts as inflation continues to decelerate.
Therefore, the weaker inflation data and rising expectations of a Bank of England interest rate cut are driving the GBP/USD pair lower, as reduced rate hike prospects make the British pound less attractive to investors, increasing selling pressure on the currency.
US Dollar Strengthens Amid Rate Cut Expectations and Resilient Economic Data
On the US front, the US Dollar is holding strong near a two-month high as traders anticipate moderate interest rate cuts from the Federal Reserve (Fed) in upcoming policy meetings. The US Dollar Index (DXY) is maintaining its gains around 103.30 after the Fed initiated its policy-easing cycle with a significant 50 basis point (bps) cut in September. According to the CME FedWatch tool, traders are expecting further rate cuts of 25 bps in both November and December meetings.
Despite these expectations, recent positive US economic data has reduced fears of an economic slowdown. Key indicators like Nonfarm Payrolls (NFP) and ISM Services PMI showed strong growth in September, suggesting economic resilience. Additionally, inflation pressures increased unexpectedly, indicating that the battle against rising prices is ongoing.
Therefore, the strength of the US Dollar, supported by anticipated Fed rate cuts and positive economic data, is exerting downward pressure on the GBP/USD pair. Looking ahead, investors are keenly awaiting the release of September's US Retail Sales data.
GBP/USD – Technical Analysis
The GBP/USD pair is trading at $1.30095, down 0.51% as bearish momentum continues to pressure the currency pair. On the 4-hour chart, the price has dipped below the pivot point of $1.3037, signaling a continuation of the recent downtrend.
Immediate resistance is observed at $1.3076, with further levels at $1.3102 and $1.3133. However, with the pair trading near key support at $1.3002, a break below this level could accelerate selling toward the next support zones at $1.2969 and $1.2942.
Technical indicators point to a bearish outlook, with the Relative Strength Index (RSI) at 31, hovering near oversold territory. This suggests the possibility of a short-term bounce, but the overall trend remains downward.
The 50-period Exponential Moving Average (EMA) is currently at $1.3062, reinforcing the bearish sentiment as the price remains well below this level. Traders should watch for further declines, especially if the pair breaches $1.3002.
A potential trading strategy could involve selling below $1.30353, targeting $1.29842, with a stop loss set at $1.30636 to mitigate risks.
The oversold RSI offers a note of caution, signaling the possibility of a short-term corrective move, but overall, the downward trend appears dominant.
This analysis highlights the key levels and indicators driving the GBP/USD’s short-term outlook, with a bearish bias prevailing for now.
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