GBP/USD Price Analysis – Oct 28, 2024

Daily Price Outlook

During the European trading session, the GBP/USD pair reversed its early bearish trend, gaining positive momentum around the 1.2982 mark and reaching an intraday high of 1.2988.

This upward movement likely reflects a weakening U.S. Dollar as investors shift their focus to key U.S. economic data releases scheduled for this week.

Moreover, the British Pound outperforms its major counterparts as markets anticipate the UK’s Autumn Forecast Statement, set for release on Wednesday.

On the flip side, the gains in the GBP/USD pair may be limited, as Labour's first budget is unlikely to propose significant spending increases due to the ongoing challenge of high inflation. This cautious outlook could undermine the GBP, as investors remain wary of the government's capacity to effectively address inflation concerns.

Impact of Economic Uncertainty on GBP/USD Performance

Despite the Pound Sterling performing well against most major currencies on Monday, it is still facing pressure ahead of the UK's Autumn Forecast Statement, set for Wednesday.

The Labour Party's first budget is unlikely to include major spending increases due to high inflation. The Chancellor of the Exchequer has promised to keep election commitments, which means no increases in income tax or national insurance, but there may be a rise in employers' national insurance by up to 2 percentage points.

Moreover, the Labour Party is expected to offer significant support for making housing more affordable.

Meanwhile, speculation about the Bank of England (BoE) cutting interest rates in its remaining meetings this year could dampen the appeal of the Pound Sterling.

Market expectations are leaning towards a 25 basis point rate cut in November and December, following dovish comments from BoE Governor Andrew Bailey during discussions at the IMF meeting last week.

Bailey noted that while disinflation is occurring more quickly than anticipated, there are still concerns about potential structural changes in the economy. This outlook could contribute to a cautious sentiment among investors regarding the Pound's future performance.

Therefore, the uncertainty surrounding the UK's Autumn Forecast Statement and potential interest rate cuts by the Bank of England may weaken the GBP/USD pair. Investors' cautious sentiment could lead to a decline in the Pound's value against the U.S. Dollar.

Impact of US Economic Data and Political Uncertainty on GBP/USD Performance

On the US front, the US dollar lost some of its traction but it is still near a three-month high of around 104.60. Investors are particularly interested in the preliminary Q3 Gross Domestic Product (GDP) and the October Nonfarm Payrolls (NFP) data, which will provide insights into the current state of economic growth and labor demand.

These economic indicators will heavily influence market expectations regarding the Federal Reserve's interest rate outlook for the rest of the year.

However, the Fed began its policy-easing cycle with an unusual 50 basis point interest rate cut in September due to concerns about rising economic risks, while maintaining confidence that inflation will stay on track to meet its 2% target. Traders anticipate further cuts of 25 basis points in November and December, as indicated by the CME FedWatch tool.

Moreover, the uncertainty surrounding the upcoming US presidential election is likely to support the US Dollar.

Financial experts discussed the potential impact of the election during last week's International Monetary Fund (IMF) meetings, particularly regarding former President Donald Trump's promise to raise tariffs, which could increase global supply chain costs.

Therefore, the mild bearish US Dollar, combined with key economic data influencing Federal Reserve rate expectations, could support the GBP/USD pair. However, ongoing uncertainties related to the US presidential election create volatility, impacting the Pound's strength against the Dollar.

GBP/USD – Technical Analysis

GBP/USD has resumed a downward trajectory after hitting a resistance level at $1.2975, with further declines pushing it towards the $1.2932 level. The British pound is currently trading below the 50-day Exponential Moving Average (EMA) at $1.2965, signaling bearish momentum.

A break below the $1.2950 pivot point indicates potential for further downside movement, particularly as the Relative Strength Index (RSI) stands at 36, showing weakened buying interest and potential oversold conditions in the near term.

Immediate resistance is at $1.2956, with the next levels at $1.2975 and $1.3012. On the downside, immediate support lies at $1.2932, followed by $1.2921 and $1.2886. With the RSI failing to hold above 40 and the price remaining under the 50 EMA, bearish sentiment could persist, provided there is no significant reversal above the $1.2956 level.

If GBP/USD breaks below the $1.2921 support level, it could extend losses toward the next key support at $1.2886, reflecting potential downside momentum in line with current market sentiment.

Conclusion: GBP/USD is poised for further declines, with key support at $1.2921 and immediate resistance at $1.2956. Sustained trading below the pivot point at $1.2950 reinforces the bearish outlook, while a break below $1.2921 could signal continued downside.

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