GBP/USD Price Analysis – Sep 21, 2023

Daily Price Outlook

The GBP/USD currency pair has struggled to break its downward momentum, continuing its descent below the crucial 1.2300 support level. This decline has persisted for two consecutive days and currently stands at its lowest point since early June. However, the main reason for this decline is the strength of the US Dollar. Following the Federal Reserve's recent FOMC meeting, the US Dollar staged an impressive rebound and is now approaching a six-month high. This resurgence in the US Dollar's value is exerting substantial pressure on the GBP/USD pair. In simpler terms, the robust US Dollar is causing the British Pound (GBP) to weaken within this currency pair.

Notably, the Federal Reserve's more hawkish stance is contributing to the USD's strength, and there are also expectations of the Bank of England (BoE) pausing its interest rate hikes, which adds to the downward pressure.

Fed's Interest Rate Decision and USD Outlook

As expected, the Federal Reserve decided to keep interest rates unchanged. However, they still have plans for rates to reach between 5.5% and 5.75% this year, with the possibility of one more 0.25% increase in 2023. They've also adjusted their outlook for next year, now anticipating a rate of 5.1%, which is a change from their previous projection of four rate cuts in 2024 to just two. Hence, the "higher-for-longer" approach, keeping US Treasury bond yields elevated, is boosting the appeal of the US Dollar as a safe-haven currency. Alongside cautious market sentiment, this is diminishing interest in riskier assets.

Market Factors and Outlook: GBP/USD Dynamics

Furthermore, the British Pound is facing pressure due to expectations of the Bank of England (BoE) pausing its interest rate hikes. As a result, this is pushing down the value of the GBP/USD pair. Another factor putting pressure on the GBP/USD currency pair is the unexpected drop in the UK's annual inflation rate (CPI) from 6.8% in July to 6.7% in August, defying expectations of a rise to 7%. This decline also affected the core CPI, which excludes volatile items, dropping from 6.9% in July to 6.2% in August. These figures align with concerns of a potential economic recession and signs of a cooling job market in the UK, reinforcing market expectations. As a result, all eyes are on the Bank of England's upcoming interest rate decision, scheduled for later this week.

Looking forward, traders will be watching important US economic data like Initial Weekly Jobless Claims, the Philly Fed Manufacturing Index, and Existing Home Sales. These, along with US bond yields and overall market sentiment, could affect the value of the US Dollar and potentially impact the GBP/USD pair.

GBP/USD - Technical Analysis

The GBP/USD pair has successfully met our primary anticipated target at 1.2310 and is exhibiting a negative bias around this level. This enhances the probability of persisting bearish momentum, potentially descending further to targets of 1.2255 and subsequently 1.2200.

The prevalent bearish channel orchestrates the anticipated downtrend, receiving consistent reinforcement from the EMA50. It's crucial to note that any inability to breach the 1.2310 level may instigate a price rebound, giving rise to a short-term bullish trend aiming to test the 1.2435 regions. For today's trading, we anticipate boundaries ranging from a support at 1.2210 to a resistance at 1.2370.