GBP/USD Price Analysis – Sep 18, 2024

Daily Price Outlook

During the European trading session, the GBP/USD pair continued its upward momentum, climbing near 1.3220 level. This surge followed the release of hotter-than-expected UK inflation data for August.

Meanwhile, the US Dollar is losing ground, weighed down by a dovish stance from the Federal Reserve, which further boosted the GBP/USD.

Looking ahead, investors are focused on the Bank of England’s (BoE) policy decision on Thursday. Before the recent inflation data, markets expected the BoE to keep interest rates unchanged at 5%.

However, with inflation still high, many now believe rates could stay at this level for the rest of the year.

Fed's Expected Rate Cut and Policy Shift May Heighten GBP/USD Volatility

On the US front, the Fed is widely expected to announce its first interest rate cut in over four years. According to the CME FedWatch tool, there's a 65% chance the Fed will lower rates by 50 basis points to 4.75%-5.00%, with the remaining probability favoring a smaller 25-bps cut.

The main focus now is on how fast the Fed will continue reducing rates, as officials have signaled growing concern over weakening labor demand rather than inflation.

In addition to the rate decision, investors will pay close attention to the Fed’s dot plot, which shows the long-term interest rate expectations from policymakers, and the updated economic projections.

Fed Chair Jerome Powell’s press conference following the announcement will also be crucial for understanding the central bank’s future policy path. Recent comments from Fed officials suggest that they are now more focused on weakening labor demand than on inflation.

This hints at a shift toward a more balanced policy approach as they look to normalize rates.

This news is likely to increase volatility in the GBP/USD pair. A Fed rate cut could weaken the US dollar, potentially pushing GBP/USD higher, but uncertainty around the pace of cuts and labor market concerns may keep movements unpredictable.

UK Inflation Surge Fuels Uncertainty Around BoE Rate Cuts, Boosting GBP/USD

Another factor boosting the GBP/USD pair is the hotter-than-expected UK inflation data for August. The Office for National Statistics (ONS) reported that core inflation, which excludes items like food and energy, rose by 3.6%, higher than the expected 3.5%, and up from 3.3% in July.

Additionally, services inflation, closely monitored by the Bank of England (BoE), increased sharply to 5.6% from 5.2% in July. This rise in inflation could make traders rethink their expectations of another interest rate cut from the BoE this year.

GBP/USD - Technical Analysis

GBP/USD is currently trading at $1.31912, up 0.24%, showing signs of steady momentum. The pair is inching closer to its key pivot point at $1.3226, which marks an important inflection level.

Immediate resistance is just above at $1.3227, followed by additional resistance levels at $1.3265 and $1.3306. On the downside, support levels are found at $1.3113, with further support at $1.3060 and $1.3003.

The RSI stands at 57, indicating mildly bullish sentiment, with room for further gains if the upward momentum continues.

The price is currently hovering above the 50-day EMA, which is positioned at $1.3125, suggesting that the short-term trend is supported by technical factors.

As long as the pair maintains levels above the $1.3125 EMA, a bullish continuation could unfold, potentially breaking above the $1.3227 resistance.

Traders are keeping an eye on macroeconomic events, including the upcoming Bank of England meeting, which could create additional volatility. For now, the pair shows a potential buying opportunity above $1.31706, with a take profit at $1.32259 and a stop-loss at $1.31415.

Should the price break below the $1.3113 support level, it could signal a shift towards a more bearish outlook.

Overall, the pair is poised between critical support and resistance levels, making the $1.3226 pivot a key determinant for the next market move.

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