GBP/USD Price Analysis – Oct 21, 2024
Daily Price Outlook
During the European session on Monday, the GBP/USD pair struggled to maintain its upward trend, turning bearish around the 1.3026 level and hitting an intraday low of 1.3012. However, the surprise drop in the UK Consumer Price Index (CPI) has increased expectations for a 25 basis point (bps) interest rate cut at the upcoming November 7 meeting.
Meanwhile, money markets are pricing in the possibility of another BoE rate cut in December, which could further undermine the British Pound (GBP). This situation, combined with the underlying bullish sentiment surrounding the US Dollar (USD), reinforces the negative outlook for the GBP/USD pair. However, the strength of the US Dollar was supported by expectations of modest rate cuts by the Federal Reserve (Fed).
UK Inflation Decline Fuels Rate Cut Expectations, Weighing on GBP/USD Pair
On the data front, the surprising drop in the UK Consumer Price Index (CPI) has brought inflation to its lowest level since April 2021, falling below the Bank of England's (BoE) 2% target. This development has raised expectations for a 25 basis point (bps) interest rate cut at the BoE's meeting on November 7. Moreover, money markets are considering the possibility of another rate cut in December, which could further weaken the British Pound (GBP).
As a result, any short-term increase in the GBP/USD pair could be seen as a selling opportunity. However, bearish traders may choose to wait for the pair to fall below the important 1.3000 psychological level before making new bets. If the pair does drop below this mark, traders may position themselves for a further decline toward the support level at the 100-day Simple Moving Average (SMA), currently around the 1.2960 region.
US Dollar Strengthens Amid Fed's Stance and UK Inflation Data, Pressuring GBP/USD Pair
On the US front, the US dollar is gaining strength as expectations of modest rate cuts by the Federal Reserve (Fed) support higher US Treasury yields. Investors have dismissed the chance of a significant interest rate cut by the Fed in November, as recent economic data shows that the US economy remains resilient.
Fed officials, including Atlanta Fed President Raphael Bostic, have expressed that there is no rush to cut rates, with forecasts suggesting rates may eventually fall to around 3-3.5% by the end of next year. This stability in US monetary policy contrasts sharply with the weak inflation data from the UK, which has raised expectations for more aggressive easing measures from the Bank of England.
As a result, the stronger US Dollar and shifting monetary policies create a challenging environment for the GBP/USD pair. The combination of a resilient US economy and potential rate cuts from the Bank of England may lead to further declines in the British Pound's value against the dollar.
GBP/USD – Technical Analysis
GBP/USD is currently trading at $1.30431, with minor fluctuations indicating consolidation around this level. The pair faces selling pressure after peaking at $1.30816, failing to break a key resistance zone.
The GBP/USD has retraced from its resistance zone of $1.30821, and the price is currently hovering near the pivot point of $1.30322. The pattern on the chart indicates a bearish bias, especially after the pair failed to break above the resistance level at $1.30821.
Technical indicators present mixed signals. The Relative Strength Index (RSI) is currently at 55.93, indicating that the market is neither overbought nor oversold, which suggests that there’s still room for downside movement. The 50-period Exponential Moving Average (EMA) at $1.30322 acts as a dynamic support level, but the price is trending below it, hinting at potential bearish pressure.
Key levels to watch include the immediate support at $1.30148. A break below this level could accelerate selling towards the next support levels at $1.29953 and $1.29733. Conversely, if prices rebound from $1.30148, immediate resistance stands at $1.30816, with a key upside target of $1.31301.
Conclusion: GBP/USD’s outlook remains bearish below $1.30559. Traders may consider entering short positions below this level, targeting $1.30148 with a stop-loss at $1.30821. The bearish sentiment is reinforced by the pair trading below the pivot point and immediate resistance zone.
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