GBP/USD Dips to 1.2850 Amid Growing BoE Rate Cut Speculation
As investors and market observers keep a keen eye on the financial markets, the GBP/USD exchange rate has demonstrated significant movement, edging toward the critical support level of 1.2850. This movement comes at a time when expectations for a rate cut by the Bank of England (BoE) are intensifying. Currently, the probability of a rate reduction at the forthcoming BoE meeting has been adjusted to 53%, with forecasts suggesting approximately 52 basis points of cuts throughout 2024.
A recent poll by Reuters, conducted between July 18 and July 24, has indicated that more than 80% of economists are anticipating the BoE to decrease its key borrowing rates by 25 basis points to 5% during its August session. This marks a slight decline in expectations compared to June when 97% of respondents were predicting a rate cut. Despite this overwhelming consensus among economists, market participants’ expectations stand at a lower 53% chance of rate cuts next month.
The undercurrents of market sentiment have been influenced by potential adjustments in fiscal policy and growing apprehensions regarding the global economic outlook for the second half of 2024. This shift in perception has been somewhat mirrored in the UK business optimism index, which has seen a notable dip in Q3, falling to -9 from Q2’s optimistic reading of +9. This decline is likely reflective of concerns over global growth prospects and anticipations of increased inflation within the UK.
Upcoming US Gross Domestic Product (GDP) data is poised to bring added volatility to the GBP/USD pair. Market predictions lean towards a 2% growth figure, though there’s speculation that the actual numbers could reveal a healthier 2.3-2.5% increase. Such an outcome would not only provide reassurance regarding the US economy’s robustness but also influence the Federal Reserve’s approach to interest rate adjustments moving forward. The response to this data could either bolster the US dollar by corroborating the need for future rate cuts or, contrastingly, spark concerns over a potential recession should the figures fall short of expectations.
From a technical analysis perspective, the GBP/USD has seen a gradual decline since reaching highs above the 1.3000 threshold. The pair is now approaching immediate support at 1.2850, with further downside possibly exposing it to another test of an ascending trendline. Notably, the daily price action and structure suggest a continuing bullish trend, though a closure below 1.26200 could significantly alter this outlook. For a downward trend to be confirmed, the pair would need to breach the 100 and 200-day moving averages, situated at 1.2680 and 1.2622 respectively.
In the event of an upward trajectory, resistance levels are poised at 1.2950, preceding the psychologically important 1.3000 marker. Market participants will, therefore, be watching closely as these critical levels could dictate the direction of the GBP/USD pair in the coming weeks.
