GBP/USD Price Analysis – Sep 16, 2024
Daily Price Outlook
During Monday's European session, the GBP/USD pair continued its strong upward movement, climbing to around 1.3180 and peaking at 1.3195.
This rise was mainly fueled by the belief that the Bank of England (BoE) will approach policy changes more cautiously compared to the Federal Reserve (Fed).
Meanwhile, the USD Index (DXY), which measures the Greenback against a basket of major currencies, remains close to its year-to-date low from August.
Traders are speculating on a substantial rate cut by the Fed later this week, possibly reducing borrowing costs by 50 basis points. This expectation comes in response to recent data showing a slowdown in US inflation.
As a result, US Treasury bond yields are hovering near their 2024 lows, putting additional pressure on the USD. In the meantime, the overall positive market sentiment is also diminishing the Greenback's appeal as a safe-haven asset.
US Dollar Weakness and Fed Rate Cut Expectations Boost GBP/USD
On the US front, the broad-based US dollar, tracked by the USD Index (DXY), is struggling near its lowest point of the year, set in August. This decline comes amid expectations that the Federal Reserve (Fed) will ease its monetary policy more aggressively.
Traders are now betting that the Fed will cut interest rates by 50 basis points (bps) later this week, up from 30% a week ago to 61% according to the CME FedWatch tool.
This shift is driven by recent data showing a slowdown in US inflation, with the Producer Price Index (PPI) for August revealing a faster-than-expected drop in producer prices to 1.7%.
The US dollar's decline and expectations of a significant Fed rate cut have bolstered the GBP/USD pair, as investors anticipate that the Bank of England will be less aggressive in easing policies compared to the Fed, strengthening the British Pound.
Impact of Bank of England and UK Economic Data on GBP/USD
On the other hand, the British Pound (GBP) is benefiting from the expectation that the Bank of England (BoE) will ease its policies less aggressively than the Federal Reserve (Fed) in the coming year.
This helps boost the GBP as the Fed is expected to cut rates more sharply. However, there are still concerns in the market about the BoE's actions.
Recent data showed a slowdown in UK wage growth and flat GDP for two consecutive months in July, leading to some uncertainty about the GBP's future strength.
Despite the positive sentiment around the GBP, these economic indicators might temper enthusiasm among investors.
They could be cautious about making strong bets on the GBP/USD pair due to these signs of economic weakness.
As a result, while the GBP gains from expectations of less aggressive BoE policy easing, the recent UK data might make traders hesitant to take bold positions in the GBP/USD currency pair.
Therefore, the GBP/USD pair benefits from expectations of a less aggressive BoE policy easing compared to the Fed.
However, concerns over recent UK economic data, including slow wage growth and flat GDP, may temper investor enthusiasm and limit GBP gains.
GBP/USD - Technical Analysis
GBP/USD is trading at $1.31716, up 0.24%, maintaining a bullish tone as it approaches key resistance levels. Immediate resistance is found at $1.3209, followed by $1.3238 and $1.3260.
The bullish sentiment remains intact as the price stays above the pivot point of $1.3158, signaling potential for further gains.
However, the Relative Strength Index (RSI) is currently at 67, approaching overbought territory, suggesting a possible near-term pullback.
On the downside, immediate support lies at $1.3102, followed by $1.3077 and $1.3051. The 50-day EMA at $1.3094 is providing crucial support, reinforcing the broader bullish momentum.
A break below this level could indicate a reversal, but as long as the price holds above $1.3158, traders may remain optimistic about further gains.
The overall outlook for GBP/USD stays positive, with buyers looking for an entry point above $1.31585. Targeting take-profit levels near $1.32059, traders may expect the pair to test higher resistance levels.
However, with the RSI nearing overbought conditions, caution is warranted as profit-taking could emerge, potentially sending the pair back to test support levels.
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