GBP/USD Price Analysis – Sep 04, 2024

Daily Price Outlook

During the European trading session, the GBP/USD pair remained subdued around the 1.3112 level as market sentiment weakened amidst rising uncertainty ahead of the release of the US Nonfarm Payrolls (NFP) data for August, due on Friday. Despite growing speculation that the Bank of England (BoE) will implement a shallower policy-easing cycle for the remainder of the year compared to other central banks, the British currency struggles to gain strength.

British Pound Weakens Despite Improving UK Economy and BoE Rate Cut Expectations

On the BoE front, the British Pound is struggling against major currencies. Despite speculation that the Bank of England (BoE) will ease its monetary policy only slightly for the rest of the year, the Pound remains weak.

Market expectations indicate the BoE might cut interest rates by 40 basis points (bps) this year. In comparison, the European Central Bank (ECB) is expected to cut rates by 65 bps, and the Federal Reserve (Fed) is projected to lower its rates by 100 bps.

Consequently, the UK economy is showing signs of improvement, with better-than-expected performance in manufacturing and services. The final S&P Global/CIPS Composite PMI for August was revised up to 53.8, surpassing the preliminary figure of 53.4.

This suggests that the UK economy is growing at its fastest pace since April. Despite this positive news, the Pound’s performance remains subdued, reflecting a cautious outlook on the BoE’s gradual approach to policy easing.

GBP/USD Pressured by US NFP Uncertainty and Fed Rate Cut Speculation

On the US front, the GBP/USD pair is struggling as market uncertainty grows ahead of the US Nonfarm Payrolls (NFP) data for August, due on Friday. S&P 500 futures have dropped further, showing decreased risk appetite among investors, while the US Dollar Index (DXY) slightly corrects to around 101.60.

The NFP report is crucial because it will influence expectations about the Federal Reserve's interest rate decisions in September. While the Fed is expected to adjust its policy this month, there's debate over whether it will cut rates significantly or take a more gradual approach.

If the NFP data shows a slowdown in job growth and higher unemployment, expectations for a 50 basis point (bps) rate cut by the Fed will likely rise. Fed Chair Jerome Powell has indicated support for the labor market if it worsens. Conversely, if the job data is steady or better than expected, hopes for a large rate cut may weaken.

Investors will also watch the US JOLTS Job Openings for July and the Fed’s Beige Book for more clues on the labor market, with job openings anticipated to decrease slightly from June.

Therefore, the uncertainty around the US NFP data and potential Federal Reserve rate cuts is likely to keep the GBP/USD pair under pressure. Weak job data could boost the Dollar due to expectations of aggressive Fed cuts, while strong data might weaken the Pound further.

GBP/USD - Technical Analysis

The GBP/USD pair is trading at $1.31136, with a modest gain of 0.01%. Currently, the pair is hovering near a crucial pivot point at $1.31620, signaling potential indecision in the market.

The 50-day Exponential Moving Average (EMA) rests at $1.31695, just above the current price level, reinforcing the significance of the resistance at $1.31880. A break above this resistance could open the door for gains toward $1.32269, but for now, the downside appears to dominate the outlook.

The Relative Strength Index (RSI) is at 39, suggesting that bearish momentum is gaining strength, but it is not yet in oversold territory. If the pair breaks below the immediate support at $1.31218, we could see a test of lower levels, with the next support sitting at $1.30784. Further declines may push GBP/USD toward $1.30410 and $1.30111, which will be key areas for bulls to defend.

For today, the key battle lies around the $1.31620 pivot. A failure to break this level would likely result in a bearish continuation, with selling pressure intensifying if $1.31218 is breached. On the upside, a break above $1.31880 could trigger a bullish reversal, but the pair remains constrained by the broader downward trend.

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