GBP/USD Price Analysis – Sep 25, 2024
Daily Price Outlook
During the European trading session, the GBP/USD currency pair edged lower but held near the 1.3400 level as the US dollar continued to weaken, nearing its yearly low. This weakness is driven by expectations that the Federal Reserve might deliver one more significant interest rate cut before the end of the year.
Meanwhile, Investors believe the Bank of England (BoE) will gradually lower interest rates, as hinted by BoE Governor Andrew Bailey, who recently stated that interest rates are likely to decrease slowly.
Looking ahead, the focus will shift to the US core Personal Consumption Expenditures (PCE) data for August, set to be released on Friday. This is the Fed's key inflation measure, and economists expect core inflation to rise slightly to 2.7% from 2.6% in July.
US Dollar Weakens Amid Fed Rate Cut Expectations, Boosting GBP/USD
On the US front, the broad-based US Dollar is weakening, pushing the GBP/USD pair near its yearly high. The US Dollar Index (DXY), which measures the dollar’s value against six major currencies, is hovering around 100.20.
This decline comes as investors expect the Federal Reserve (Fed) to implement one more large interest rate cut in its remaining two policy meetings this year. The Fed recently cut interest rates by 50 basis points (bps), bringing them to a range of 4.75%–5.00%, in an effort to strengthen the labor market and return inflation to its 2% target.
According to the CME FedWatch tool, the Fed is expected to reduce interest rates by another 75 bps before the year ends, likely through one 50 bps cut and one 25 bps cut. The probability of a 50 bps rate cut in November has jumped to 59%, up from 37% a week ago.
Out of the 12 members of the Federal Open Market Committee (FOMC), only Fed Governor Michelle Bowman favored a more cautious approach with a smaller, 25 bps cut. These expectations are putting downward pressure on the US Dollar, benefiting the GBP/USD pair.
BoE's Gradual Rate Cuts and Inflation Concerns Boost GBP/USD
Another factor boosting the GBP/USD pair is the expectation that the Bank of England (BoE) will gradually lower interest rates. BoE Governor Andrew Bailey recently mentioned that the path for interest rates is likely to trend downward, but slowly.
He expressed confidence that inflation will return to the bank’s target of 2%, though he did not specify exactly where rates would settle. Bailey also assured that interest rates are unlikely to drop back to the historic lows seen during the pandemic.
In the UK, inflation has been close to the 2% target in recent months. However, high inflation in the services sector remains a concern for BoE policymakers. The Service Consumer Price Index (CPI), which is closely watched by the bank, increased from 5.2% in July to 5.6% in August.
This persistent rise in service sector prices is one reason the BoE is carefully managing rate cuts, ensuring that inflation across all sectors stabilizes before making significant changes.
GBP/USD - Technical Analysis
The GBP/USD pair is currently trading at $1.33989, down 0.11%, showing signs of consolidation following a modest decline in the previous session. The pair’s pivot point is set at $1.33831, indicating that a break above this level could signal renewed bullish momentum.
Immediate resistance is found at $1.34293, with further resistance levels at $1.34551 and $1.34885. A break above these levels could push the pair higher, signaling a potential short-term trend reversal.
On the downside, immediate support is seen at $1.33594, followed by key levels at $1.33310 and $1.32993. If prices fall below these levels, the GBP/USD pair could experience a deeper pullback, especially as market participants remain cautious ahead of key economic data releases.
Technical indicators show mixed sentiment. The Relative Strength Index (RSI) is currently at 53, indicating neutral momentum, though a dip below 50 would suggest increased bearish pressure. The 50-day Exponential Moving Average (EMA) is positioned at $1.33655, offering a critical support level for short-term trading.
Given the current technical setup, traders might consider entering long positions above $1.33831, with a take-profit target of $1.34280 and a stop-loss set at $1.33591.
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