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21/10/24
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GBP/USD Struggles Near One-Month Low Amidst Strong Dollar and Rate Cut Speculations
The GBP/USD pair is maintaining its proximity to a one-month low reached recently, influenced by a strengthening US dollar. The prediction of a more gradual easing of Federal Reserve policies, coupled with ongoing geopolitical tensions, is sustaining the dollar’s bullish momentum. Simultaneously, expectations for a rapid rate-cutting cycle by the Bank of England (BoE) are creating downward pressure on the British pound, favoring bearish sentiment.
In Asian trading on Monday, GBP/USD has shown limited ability to build on modest recovery gains from the past couple of days, fluctuating within a tight range around 1.3050 – 1.3045. The spot price is still close to the one-month low recorded last Thursday and appears at risk of extending the recent decline from a high of 1.3435, which was the strongest level seen since March 2022.
A surprising drop in the UK’s Consumer Price Index (CPI) to its lowest point since April 2021, falling below the BoE’s 2% target, has sparked expectations for a 25 basis-point interest rate cut at the upcoming November 7 meeting. Additionally, market participants are also weighing the likelihood of another rate reduction in December, further undermining the strength of the British pound. The prevailing strength of the dollar also supports a pessimistic outlook for the GBP/USD pair.
The US Dollar Index (DXY), which measures the currency against a varied basket of counterparts, commenced the week positively, with a recent pause following a modest pullback from its peak levels not seen since early August. Increasing confidence in a measured pace for Fed rate cuts over the upcoming year is keeping US Treasury yields elevated, vouching for the dollar’s resilience. Geopolitical uncertainties are adding another layer of support for the dollar as a safe-haven asset.
Given the current economic landscape, devoid of impactful economic data from both the UK and the US, the underlying conditions suggest a bearish trajectory for the GBP/USD pair. Any intraday gains may be viewed as potential selling opportunities. Bearish traders are likely to look for confirmation below the psychological threshold of 1.3000 before making new positions, targeting a decline toward the 100-day Simple Moving Average support near the 1.2960 level.
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