Technical Outlook On GBP/USD

The Pound Sterling is trading just below its recent highs against the US Dollar after the Federal Reserve cut rates. The pound has reached a seven-week high of about 1.3400, while the US Dollar remains weak due to the Fed’s dovish approach. The Fed’s rate was adjusted to 3.50%-3.75%, with another cut expected in 2026. This has put more pressure on the US Dollar, worsened by lower inflation forecasts and rising unemployment. In the coming days, key UK economic data is expected, including GDP data that predicts a growth of 0.1%, labor market statistics, and November’s Consumer Price Index. A strong economic performance could improve growth prospects, especially since the UK’s fiscal watchdog recently raised GDP forecasts for the year to 1.5%. Additionally, the Bank of England is likely to reduce its interest rate by 25 basis points to 3.75% due to a weak job market. Meanwhile, US Initial Jobless Claims data will also impact the GBP/USD pair, with predictions showing an increase to 220,000 claimants. The GBP/USD pair is well-supported above a 20-day EMA of 1.3266, showing good upward momentum and potential to reach October’s high of 1.3471. Current technical analysis indicates a positive outlook for the GBP. However, a daily close below this key level could change that perspective. The Federal Reserve’s recent decision to cut interest rates has pushed the US dollar to a seven-week low, benefiting the Pound, which is now trading around 1.3370 against the dollar. This aligns with our view that central bank policy changes are driving this trend. We’ve been monitoring a softening labor market in the US for a few quarters, a shift from the tight conditions in 2023 and 2024. Last week’s report showed unemployment rising to 4.2%, providing the Fed with a justification for its decision. This confirms our belief that the focus has shifted from fighting inflation to supporting a slowing economy.

Anticipation On Economic Data And BoE Decision

All eyes are now on the Bank of England’s upcoming decision, expected to lower rates to 3.75%. The UK economy is showing signs of weakness, with unemployment rising to 4.8% and inflation cooling to 2.9% in October. This situation allows the BoE to ease policy without worrying too much about inflation pressures. The immediate focus is tomorrow’s UK GDP data for October, followed by inflation numbers next week. This sequence of important events is likely to cause increased volatility in the GBP/USD pair. Traders might want to consider options, such as straddles, to benefit from significant price swings in either direction, regardless of the data outcomes. We believe the market has already priced in the BoE’s rate cut, which presents an opportunity if UK economic data surprises positively. If tomorrow’s GDP or next week’s inflation figures are better than expected, the BoE might decide to hold rates steady, which could cause the Pound to rise sharply. Buying short-dated GBP/USD call options with a strike price around 1.3450 could be a cost-effective strategy for such a surprise. This situation, where major central banks are easing policy at the same time, is reminiscent of the global response to the pandemic in 2020. In such cases, currency movements were often driven by which economy was viewed as “less weak.” This suggests traders should closely compare incoming US and UK data to gain an advantage. Create your live VT Markets account and start trading now.

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