GBP/USD Price Analysis – Sep 02, 2024
Daily Price Outlook
During the early European trading session, the GBP/USD currency pair reversed its downward trend and turned bullish at around the 1.3135 level, reaching an intra-day high of 1.3146.
This upward movement is largely attributed to renewed selling pressure on the US dollar. The USD is under pressure due to increased market optimism and growing expectations of a dovish stance from the US Federal Reserve (Fed).
Meanwhile, the Bank of England (BoE) is anticipated to gradually lower interest rates later this year, which could support the Pound Sterling (GBP).
Investors are now focusing on upcoming economic data, including the US ISM Manufacturing PMI on Tuesday and the Nonfarm Payrolls report on Friday. These reports will be key for traders looking to gauge potential market impacts.
Impact of Fed Rate Cut Expectations and PCE Data on GBP/USD Pair
On the US front, the US dollar is facing renewed bearish pressure due to growing market optimism and increasing expectations that the Federal Reserve (Fed) might adopt a more dovish stance.
According to the CME FedWatch Tool, there is a 70% chance that the Fed will cut rates by at least 25 basis points at its September meeting.
However, the recent economic reports have led traders to rethink the likelihood of a significant rate cut by the Fed in September.
On the data front, July's Personal Consumption Expenditures (PCE) Index data showed a 2.5% increase year-over-year, matching the previous month’s reading but falling short of the 2.6% forecast.
Additionally, the core PCE Index, which excludes food and energy, rose by 2.6% year-over-year in July, consistent with the prior figure but slightly below the expected 2.7%.
These figures suggest that while inflation remains steady, it may not be weak enough to prompt a more aggressive rate cut by the Fed.
Therefore, the bearish US dollar and mixed PCE data could support the GBP/USD pair. However, the weaker dollar and uncertainty around aggressive Fed rate cuts might boost the GBP, leading to potential gains for the GBP/USD pair.
BoE's Gradual Rate Cuts Support GBP/USD Amid Cautious Approach
Another factor that has been boosting the GBP/USD pair is the Bank of England's (BoE) plan to gradually lower interest rates for the rest of the year.
This move is expected to support the Pound Sterling (GBP) and help it maintain its position in the market.
At the recent Jackson Hole Symposium, BoE Governor Andrew Bailey mentioned that the impact of inflationary pressures would be less severe than previously thought.
However, Bailey also cautioned against rushing into further rate cuts too quickly. This balanced approach aims to stabilize the GBP while managing inflation concerns.
According to Reuters, the BoE is taking a careful approach to ensure that any changes in interest rates are well-measured and do not negatively affect the economy.
GBP/USD - Technical Analysis
The GBP/USD pair is currently trading at $1.31347, showing a slight uptick of 0.02% in early trading. The currency pair is hovering just below the pivotal $1.3156 level, which serves as a crucial point in determining the next directional move.
The 4-hour chart indicates that the pair faces immediate resistance at $1.3188, which aligns closely with the 50-day Exponential Moving Average (EMA). A break above this level could push the pair towards the next resistance levels at $1.3227 and $1.3265.
On the downside, GBP/USD finds immediate support at $1.3119, with further support levels at $1.3078 and $1.3041.
The Relative Strength Index (RSI) is currently at 40, signaling that the pair is leaning towards a bearish trend, but is not yet in oversold territory. This suggests that there could be more room for downside movement if the pair fails to hold above the key pivot point at $1.3156.
Given the current technical setup, traders might consider short positions below $1.3156, with a potential target around $1.3111.
Conversely, a break above $1.3188 would likely invalidate this bearish outlook, potentially setting the stage for a rally towards the $1.3227 level and beyond.
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