GBP/USD Falls to 1.3068 Amid US Dollar Strength and Bank of England Rate Cut Fears

During the European trading session, the GBP/USD pair continued its bearish trend, hovering around 1.3068 and reaching an intraday low of 1.3062.

The decline was primarily driven by the strength of the US dollar, which gained traction on the back of strong US labor market data for September. Nonfarm Payrolls (NFP) data revealed that the US economy added 254,000 jobs, significantly higher than the forecasted 140,000. Additionally, the unemployment rate fell to 4.1%, surpassing expectations.

These positive economic indicators have prompted traders to reduce bets on a larger Federal Reserve (Fed) rate cut in November. Initially, there was a possibility of a 50-basis-point cut, but now market sentiment favors a smaller 25-basis-point reduction in spring 2024. This shift in expectations has bolstered the US dollar, putting further pressure on the GBP/USD pair.

📉 #GBPUSD Update:

Current Level: 1.3116 (high: 1.3174). The pound weakened to $1.31 after Bank of #England Governor #Bailey's comments raised rate cut expectations.

🔍 Insights:
– If < 1.3100: Targets 1.3050, 1.3000, 1.2900.
– If > 1.3150: Could rise to 1.3300.

Stay sharp! pic.twitter.com/e3zPTlVtqf

— Shivansh_fx (@Shivansh1814674) October 7, 2024

Looking ahead, all eyes will be on the US Consumer Price Index (CPI) data for September, due on Thursday. The data will offer critical insights into the Fed’s potential rate decisions and will likely influence the direction of the US dollar and GBP/USD pair.

Bank of England Rate Cut Expectations Add to GBP/USD Weakness

The British Pound also faced downward pressure as expectations of another rate cut by the Bank of England (BoE) grew stronger. BoE Governor Andrew Bailey hinted at the possibility of a rate cut if inflation continues to decline. Adding to the uncertainty, BoE Chief Economist Huw Pill suggested that any rate cuts should be gradual to avoid aggressive policy changes.

Geopolitical tensions in the Middle East have further weighed on the Pound, with rising concerns that ongoing conflicts could disrupt global energy supplies. This has led to higher energy prices, increasing market volatility and affecting the performance of oil-importing countries like the UK. The combined effect of geopolitical tensions and BoE rate cut expectations has driven foreign outflows from the British Pound, keeping the GBP/USD pair under pressure.

5/ The dollar $DXY strengthened, supported by relatively upbeat U.S. economic data. Meanwhile, the British pound $GBPUSD weakened by 1% after the Bank of England signaled more aggressive rate cuts could be on the horizon.

— Fundamental Research Corp. (@FRCorp) October 3, 2024

GBP/USD Technical Outlook: Key Levels to Watch

The GBP/USD pair is trading at 1.31157, showing a slight 0.03% gain in the 4-hour chart. However, the pair struggles to sustain momentum above the 1.3135 pivot point, indicating limited buying interest. Despite minor gains, the technical outlook remains tilted to the downside due to bearish sentiment reflected in key indicators.

The 50-day Exponential Moving Average (EMA) at 1.3205 acts as a critical resistance level. Immediate resistance is observed at 1.3174, followed by 1.3216 and 1.3251. If the pair breaks above these levels, it may indicate a potential reversal in the trend. However, with the Relative Strength Index (RSI) at 39—signaling bearish bias—a continuation of the downtrend is more likely.

On the downside, immediate support is seen at 1.3071, followed by stronger support levels at 1.3037 and 1.3003. A break below 1.3071 could intensify bearish momentum, pushing the pair towards the 1.3000 psychological level. Traders should keep an eye on these levels to gauge future price action.