The British pound faced downward pressure against the US dollar, hovering below the $1.26 mark amid expectations of more aggressive interest rate cuts by the Bank of England compared to the Federal Reserve this year. Recent data showed a decline in British shop price inflation to 1.3% in March, alongside a surprising 0.2% drop in UK house prices, contrasting market forecasts. In contrast, US factory activity unexpectedly expanded in March, while job openings exceeded expectations at 8.76 million.
Market sentiment remains cautious, with money markets pricing in about 60 basis points of rate cuts in the US and 70 basis points in the UK, especially after two hawkish BoE members withdrew their calls for rate hikes. The GBPUSD pair closed slightly lower at 1.2624, down 0.14%, reflecting subdued sentiment.
Technical Analysis
Technically, the GBPUSD (1.26241) presents a neutral outlook on the 4-hour chart. The price action hovers slightly above the 20-SMA (green line) and 50-SMA (blue line) but struggles to breach the downward-sloping 100-SMA (orange line). This suggests a potential lack of underlying bullish momentum.
The RSI (50.38) sits precariously at the 50.00 level, mirroring the overall market indecision. A dovish NFP report, indicating weaker US job growth, could reignite expectations of faster interest rate cuts from the Federal Reserve. This scenario could weaken the USD and lead GBPUSD above the 100-SMA, which could offer a short-term bounce, with the initial price target at the resistance level at 1.26848, with a sustained break potentially opening doors to 1.27318 and 1.28040.
Conversely, a strong NFP report could see the USD appreciate, potentially pushing GBPUSD lower towards the initial support level of 1.25857. A confirmed break below this level could expose the critical support zone to around 1.25183.
Summary
GBPUSD maintains a subdued stance ahead of the NFP report, reflecting market caution amid expectations of diverging monetary policies between the Bank of England and the Federal Reserve.
Sources: TradingView, Simply Wall Street, MarketWatch, Dow Jones Newswire, CNBC.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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