The British Pound (GBP) struggles against the US Dollar (USD) as expectations of a rate cut by the Bank of England (BoE) diverge from the Federal Reserve’s (Fed) hawkish stance. Dovish comments from BoE Deputy Governor Dave Ramsden suggesting weaker-than-expected inflation in the UK fueled bets of an imminent rate cut, pressuring Sterling. This stands in stark contrast to the Fed, where a recent run of hotter-than-anticipated inflation data and hawkish remarks from officials have caused markets to push back expectations of a rate cut from September to November.
The upcoming preliminary Purchasing Managers’ Index (PMI) data for the UK holds significant weight. A resilient reading, particularly in the services sector, could bolster the Sterling by indicating continued economic activity and potentially prompting investors to pare back rate-cut bets. Conversely, a weaker-than-expected PMI could exacerbate the GBP’s decline.
Technical Analysis
The 4-hour shows that the GBPUSD currently trades at 1.23373, displaying a bearish technical posture. The price action sits comfortably below all three Simple Moving Averages (SMAs), with the 20-SMA recently falling below the 50-SMA and 100-SMA in a bearish crossover. The Relative Strength Index (RSI) at 35.08 reinforces the downtrend, suggesting limited upside potential in the near term.
With the RSI trading comfortably below the 50.00 level, short-term continuation might find support at the last swing low of 1.22993. A sustained break below the last swing low could offer trading opportunities towards the 1.22132 and 1.21200 support levels lower. However, a sustained push higher could offer short-term trading opportunities towards the 1.24654 resistance level higher. A break above the initial resistance would leave the 1.25846 and 1.27064 price levels firmly within reach in the near term.
Summary
The GBPUSD faces strong headwinds due to the dovish BoE outlook and a hawkish Fed. The upcoming PMI data will be crucial for Sterling’s near-term direction. Technically, the pair exhibits a bearish bias with potential downside targets. However, a break above the 1.24654 resistance could signal a short-term reversal.
Sources: TradingView, Trading Economics, MT Newswire, Dow Jones Newswire, Reuters.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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