Quick Look:
- GBP/USD fell to new weekly lows due to increased US Treasury yields and Fed rate cut expectations.
- Michael Saunders and Neel Kashkari discussed potential rate cuts and the cautious stance of MPC and Fed.
- The “Evening Star” pattern suggests a bearish trend with key support at 1.2634, 1.2580, and 1.2539.
The GBP/USD exchange rate experienced a notable decline, falling to new weekly lows on Wednesday. This downturn was primarily driven by increased US Treasury bond yields and the influence of Federal Reserve officials, who shaped traders’ expectations of potential 25 basis points rate cuts towards the end of 2024.
GBP/USD Forms Bearish “Evening Star” Pattern
From a technical perspective, the GBP/USD pair is exhibiting an “Evening Star” chart pattern, which often signals a bearish reversal. The Relative Strength Index (RSI) aims towards the 50-midline, indicating diminishing buyer momentum.
If the GBP/USD drops below 1.2700, the subsequent levels of support to watch are the May 3 daily high at 1.2634, the 50-day moving average (DMA) at 1.2580, and the 200-day moving average (DMA) at 1.2539. Conversely, if buyers reclaim the current week’s high of 1.2777, the resistance levels to observe are 1.2800 and the year-to-date (YTD) high at 1.2893.
GBP/USD Decreases 0.4%, Trading at 1.2711
As of the latest trading data, the GBP/USD pair stands at 1.2719, marking a 0.33% decrease. Later updates show the pair trading around 1.2711, indicating a near 0.4% fall from the opening rates. There were minor fluctuations, with the pair trading at 1.2759 and showing little movement from the day’s opening levels. The market mood has deteriorated, benefiting the safe-haven USD, while a lack of significant data releases has kept the GBP/USD exchange rate relatively stable.
GBP Outlook: BoE Pauses Public Appearances Before Election
The outlook for the GBP remains clouded due to a scarcity of domestic data releases. The Bank of England (BoE) has announced it will cease all public appearances before the UK’s General Election in July. Consequently, a June interest rate cut appears unlikely, primarily due to persistent inflation. However, speculation exists about a potential rate cut in August, followed by a couple more later in the year.
USD Strengthens with Treasury Yields, Inflation Concerns
The safe-haven USD is gaining from the cautious market mood, supported by US Treasury bond yields hitting a monthly high. Despite the lack of impactful data releases, the USD has remained stable. However, persistent inflation could prompt another interest rate hike by the Federal Reserve. Comments from Fed officials have kept the possibility of rate increases on the table.
Upcoming key events include the Core PCE price index due on Friday and the GDP growth rate estimate for Q1 2024. These data points are crucial for determining the future trajectory of the USD.
USD’s Future Tied to Core PCE, Q1 GDP Data
The upcoming Core PCE price index and GDP growth rate estimate for the USD will be pivotal. Persistent inflation could strengthen the USD further. For the GBP, the absence of data releases may keep it static. However, given its risk-sensitive nature, any shifts in market mood could lead to gains against the USD.
The GBP/USD exchange rate remains under pressure, with market dynamics and economic data likely to play significant roles in its near-term direction.
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