Quick Summary
- The GBP/USD pair experienced a dip during Friday’s North American session, despite heading towards the week’s end with nearly a 1% gain.
- Softer inflation figures and dovish comments from the New York Fed President John Williams have increased expectations of a potential rate cut by the Federal Reserve in December.
- In the UK, the government’s spending budget, which involves raising taxes to fund welfare spending, has faced criticism.
- Technical analysis suggests that the GBP/USD pair may have peaked, with potential for further downside if it closes below 1.3200.
- Money markets are pricing in a possible rate cut by the Bank of England (BoE), potentially leading to further downside for the GBP/USD.
The GBP/USD pair faced downward pressure during the North American session on Friday, trading around 1.3221 after retreating from a daily high of 1.3244. This movement occurred as financial markets processed the implications of the Autumn Budget.
Despite the recent dip, the GBP/USD was still on track to end the week with gains of almost 1%. This suggests underlying strength in the pound, although it remains sensitive to economic data and central bank policy expectations.
⚡ The strength of the GBP/USD this week is primarily based on previous data, and as expectations continue, volatility is expected to continue accordingly.
Pound Sterling’s Weekly Gains Trimmed by Dovish Fed Bets
The US economic calendar was lighter than usual due to the Thanksgiving holiday. However, key data releases still influenced market sentiment. Core Producer Price Index (PPI) for September fell from 2.9% to 2.6%.
Initial Jobless Claims also showed a decrease, dropping from 222K in the week ending November 15 to 216K for the week ending November 22. These figures collectively suggested a potential softening in the US economy.
📍 Keep an eye on the economic calendar as upcoming data releases can significantly impact the GBP/USD pair. Monitor PPI and jobless claim figures in particular.
These softer inflation prints and easing jobless claims strengthened the argument for the Federal Reserve to consider pausing its tightening cycle. Some analysts suggest that the Fed may even consider easing monetary policy sooner rather than later.
Adding to this narrative, dovish comments from New York Fed President John Williams further fueled speculation of a potential 25-basis-point rate cut by the US central bank at its December meeting. Market sentiment, as reflected in the FedWatch tool, currently places the odds of such a cut at 87%.
✅ Rate cuts typically weaken a currency, so be aware of the dovish rhetoric from the Fed and how it may affect the pair.
UK Fiscal Policy and its Impact on GBP/USD
In the UK, Rachel Reeves, a prominent political figure, defended the government’s spending budget. The budget proposes increased welfare spending funded by raising taxes by £26 billion.
This fiscal approach has drawn criticism, prompting Reeves to address concerns and outline the rationale behind the government’s economic strategy. The markets are digesting the potential implications of these fiscal measures.
Following the budget’s release, the GBP/USD pair initially rose above 1.3200. However, after peaking at 1.3268, the pair retraced its steps, with sellers anticipating a potential break below the 1.3200 level.
📊 Government fiscal policy can have a direct impact on currency value, so it’s important to analyze planned spending and taxation.
It’s important to note that money markets are currently pricing in a 25-basis-point rate cut by the Bank of England (BoE). This expectation of monetary easing from the BoE contributes to the potential for further downside in the GBP/USD exchange rate.
GBP/USD Price Forecast: Analyzing the Technical Outlook
From a technical analysis perspective, the GBP/USD pair appears to have reached a potential peak. The formation of an ‘evening star’ candlestick pattern suggests a possible trend reversal, especially after buyers failed to overcome key resistance at the 50-day Simple Moving Average (SMA) at 1.3279.
A daily close below the 1.3200 level could open the door for further losses, with traders likely targeting the 20-day SMA at 1.3139 as immediate support. Further downside targets could include 1.3100 and November’s bottom at 1.3010.
📌 Technical indicators like the Relative Strength Index (RSI) can offer valuable insights into potential trend reversals. Monitor the RSI for confirmation of bearish or bullish signals.
The Relative Strength Index (RSI) appears poised to turn bearish, heading downwards towards its neutral line. This suggests that sellers are gaining momentum and that further downside pressure on the GBP/USD pair may be in store.
Pound Sterling Price This Month
The table below shows the percentage change of British Pound (GBP) against listed major currencies this month. British Pound was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.22% | -0.55% | 1.39% | -0.18% | 0.16% | 0.17% | 0.35% | |
| EUR | 0.22% | -0.33% | 1.63% | 0.05% | 0.37% | 0.39% | 0.57% | |
| GBP | 0.55% | 0.33% | 1.98% | 0.38% | 0.69% | 0.73% | 0.91% | |
| JPY | -1.39% | -1.63% | -1.98% | -1.60% | -1.26% | -1.24% | -1.09% | |
| CAD | 0.18% | -0.05% | -0.38% | 1.60% | 0.27% | 0.35% | 0.52% | |
| AUD | -0.16% | -0.37% | -0.69% | 1.26% | -0.27% | 0.03% | 0.22% | |
| NZD | -0.17% | -0.39% | -0.73% | 1.24% | -0.35% | 0.03% | 0.18% | |
| CHF | -0.35% | -0.57% | -0.91% | 1.09% | -0.52% | -0.22% | -0.18% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
Frequently Asked Questions About GBP/USD
What factors influence the GBP/USD exchange rate?
The GBP/USD exchange rate is influenced by a complex interplay of factors, including economic data releases from both the UK and the US (such as inflation figures, GDP growth, and employment data), monetary policy decisions made by the Bank of England (BoE) and the Federal Reserve (Fed), political events, and overall market sentiment. Changes in interest rate expectations, risk appetite, and global economic conditions can also significantly impact the pair.
How does the Bank of England’s monetary policy affect GBP/USD?
The Bank of England’s monetary policy decisions, particularly regarding interest rates and quantitative easing, have a direct impact on the value of the British pound. If the BoE raises interest rates, it tends to strengthen the pound, as higher interest rates attract foreign investment. Conversely, if the BoE lowers interest rates or engages in quantitative easing, it can weaken the pound.
What is the significance of economic data releases for GBP/USD traders?
Economic data releases provide valuable insights into the health and performance of the UK and US economies. Traders closely monitor these releases, as they can trigger significant movements in the GBP/USD exchange rate. For example, stronger-than-expected inflation data in the UK could lead to expectations of higher interest rates, boosting the pound.
How can technical analysis be used to trade GBP/USD?
Technical analysis involves studying historical price charts and using technical indicators to identify potential trading opportunities. GBP/USD traders may use techniques such as trendline analysis, chart patterns (e.g., head and shoulders, double tops/bottoms), and indicators like moving averages, RSI, and MACD to assess the direction and strength of the trend, identify potential support and resistance levels, and generate buy or sell signals.
Final Thoughts on the GBP/USD Pair
The GBP/USD pair’s recent dip highlights the complex factors influencing its value. Dovish signals from the Federal Reserve contrast with concerns about the UK’s fiscal policy, creating uncertainty. Technical analysis suggests a potential for further decline, but traders should monitor economic releases and central bank pronouncements for confirmation.
Looking ahead, the GBP/USD’s trajectory will likely depend on the evolving economic landscape in both the UK and the US. Inflation trends, employment data, and central bank policy decisions will continue to be key drivers. Traders should remain vigilant and adapt their strategies accordingly.
