GBP/USD falls closer to psychological level of 1.3000 on USD strength

  • GBP/USD is approaching the 1.3000 line due to the strength of the USD.
  • The US dollar strengthens as markets continue to reduce bets on aggressive interest rate cuts by the Fed.
  • The Pound Sterling, however, finds support in strong UK employment data.

GBP/USD retreats towards 1.3040 on Tuesday as a result of continued strength in the US Dollar (USD), which comes from reducing bets that the US Federal Reserve (Fed) will need to be as aggressive in the reduction in interest rates as previously thought.

The US economy is holding up better than expected and, fearing a hard landing or recession, passengers in the US company are considering the possibility of a “no landing.” This suggests that policymakers will not need to reduce interest rates as sharply as anticipated to stimulate the economy. The expectation that interest rates will remain high increases foreign capital inflows, which, in turn, increases demand for USD.

GBP/USD fails to rise on positive UK employment data

GBP/USD is falling despite just-released UK employment data being relatively positive, something that would normally be expected to strengthen the British Pound (GBP) and lift the Cable.

The unemployment rate fell to 4.0% in the three months through August from 4.1% in the previous three months, and exceeded expectations for the same (4.1%). The change in employment showed an increase of 373,000 in the same period from 265,000 previously, and average earnings rose in line with expectations. The only data that caused concern was the September applicant count, which rose to 27,900 from 23,700 in August, exceeding expectations of 20,200.

Cable Movements on the calendar

The main events moving the GBP/USD market on Tuesday will likely be verbal rather than data-driven. They primarily consist of speeches by three Fed officials, including San Francisco Fed President Mary Daly, Fed Governor Adriana Kugler, and Atlanta Fed President Raphael Bostic.

On the data side, the New York Empire State Manufacturing Index is the metric of the day, although it is unlikely to move the needle much on the US Dollar.

A long list of UK data releases promises to paint Wednesday red, white and blue, with the UK’s headline inflation metric, the Consumer Price Index (CPI) and the ‘factory floor’ inflation gauge “, the Production Price Index (PPI), both scheduled for publication. These can impact the Pound Sterling because they affect the Bank of England’s (BoE) decisions on interest rates.

September’s inflation data will be particularly important because BoE officials have signaled they could resume rate cuts at the next meeting on Nov. 7.

Technical Analysis: GBP/USD reaches the bottom of the slope

GBP/USD reaches the bottom of its slope and pauses to cool down. The pair has been steadily declining since the late September highs when it reached 1.3400. Since then, the Pound has depreciated four cents to find itself back at 1.3000.

GBP/USD Daily Chart

Firm support is nearby around the 1.3005 level (thick charcoal line on chart) provided by previous peaks and troughs. The pair could bounce and recover or break below the ice and sink.

The short-term trend is bearish, but the medium and long-term trends are bullish. A close below 1.3000 would be a necessary requirement to expect the short-term downtrend to extend. Trendline support then appears fairly soon after at 1.2950 and could spoil the bearish party. A break below that would then be necessary to expect even more weakness.

The Relative Strength Index (RSI) is low but not oversold, so further decline is possible from a momentum perspective.

The price action has not formed any bullish reversal candle patterns yet, so it is too early to call a recovery. However, there is a possibility that one could evolve, given that the medium and long-term trends are bullish, so broader bullish cycles could be activated.

Source: Fx Street

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