US Retail Sales and Powell, Send GBPUSD Testing Major Support at 1.26

GBPUSD escalated the decline this week, falling 3 cents and closing right at the 1.26 support zone, which would open the door for further declines toward 1.23 if this level is broken.

Fundamentals are all pointing down for this forex pair as well, with the UK Q3 GDP report missing expectations, while showing a -.1% contraction in September and the Bank of England turning dovish. The FED on the other hand, is turning less dovish, with several members making comments on a slower pace of rate cuts on Friday, after Powell’s green light on Thursday.

In October, GBP/USD reversed sharply, dropping 6 cents as renewed USD strength wiped out earlier gains that had pushed the pair above 1.34 earlier in the year. The 100-day Smooth MA (red) initially acted as support on the daily chart, holding firm on two occasions in recent weeks. However, the release of UK labor data showing a rise in the unemployment rate triggered a bearish breakout, compounded by disappointing GDP figures that now challenge the next support level.

GBP/USD Chart Daily – Can the 100 SMA Hold As Support?

Adding to the downward pressure, the USD gained further strength following hawkish comments from the Federal Reserve about a cautious approach to rate cuts. UK labor market data revealed mounting challenges, with the ILO unemployment rate for September rising to 4.3% from the previous 4.1%. This increase, tied to poor performance in the services sector, weighed heavily on the quarterly estimate, signaling economic strain as Q4 unfolds.

UK GDP and Sectoral Data For Q3

Monthly UK GDP

• September: -0.1% vs +0.2% expected
• October: +0.2%

Sector Performance (October, m/m)

• Services: 0.0% vs +0.2% expected (Prior: +0.1%)
• Industrial Output: -0.5% vs +0.1% expected (Prior: +0.5%)
• Manufacturing Output: -1.0% vs -0.1% expected (Prior: +1.1%; revised to +1.3%)
• Construction Output: +0.1% vs +0.2% expected (Prior: +0.4%; revised to +0.6%)

Quarterly UK GDP

• Q3 Preliminary GDP: +0.1% vs +0.2% expected
  • Q2 GDP: +0.5%
• GDP YoY: +1.0%, matching expectations (Prior: +0.7%)

The UK economy showed minimal growth in Q3, underscoring a tougher landscape for the latter half of the year. For the Bank of England, these developments will be critical to watch, especially if labor market conditions stabilize or improve more rapidly in the coming months.

GBP/USD Live Chart