GBP/USD is falling due to worries about the UK economy and the Federal Reserve’s cautious stance on rate cuts. The currency pair is now below the 20-day Simple Moving Average (SMA) of 1.3596, with the 50-day SMA at 1.3480 acting as support. The British Pound faces challenges from UK fiscal issues. The Office for Budget Responsibility has warned that unsustainable policies could push government debt to 270% of GDP by the early 2070s. This situation is worsened by costs from the state pension triple lock, climate-related expenses, and demographic changes.

Fed Rate Discussion

Current predictions show a low chance of the Fed making a 25-basis-point rate change in July, with markets now looking toward September for possible easing. In the UK, fiscal risks and disappointing economic data are dragging down the Pound. GBP/USD is expected to test the 50-day SMA, and if it falls below it, further losses may occur. The Relative Strength Index shows fading momentum, while the Average True Range indicates possible volatility ahead. Traders will focus on price movements around the 50-day SMA and a rebound above 1.3595 to regain momentum. This overview highlights two main concerns: the Pound is struggling under UK fiscal pressure, and the weaker momentum in GBP/USD as traders react to the US’s slower rate cut pace. As the Fed slows down its aggressive policy stance, while UK budget worries increase, traders often sell GBP in favor of the more stable US Dollar. The Pound dropping below its 20-day average at 1.3596 isn’t just a minor dip—it signals a shift in short-term sentiment. If the next support level around 1.3480 fails, selling pressure could intensify. Markets will be keenly watching for any recovery above 1.3595, as it may suggest that selling pressure is easing.

Fiscal Outlook Impact

The UK’s fiscal outlook conveyed by the Office for Budget Responsibility presents a long-term view that traders must consider. Projections show rising national debt due to commitments like the pension triple lock and increasing climate-related costs, which adds to market caution. As future obligations grow, confidence in the currency’s stability tends to decline. Meanwhile, in the US, data has cooled expectations for a rate move in July. Some analysts may now look to September for possible changes. This might give the Pound a slight chance to recover, but any delay in easing from the Fed means tighter policies for a longer period, directing more funds toward the Dollar—an environment where the Pound struggles. For now, traders will closely monitor behavior around the 50-day average. A close below it, especially with increased trading volume, often leads to lower price levels. With the Relative Strength Index showing weaker momentum and the Average True Range hinting at increased volatility, there’s little room for passive strategies right now. Risk management is crucial in this situation. It’s wise to focus on clearer levels and limit trades in uncertain areas. A significant break below the 50-day line will likely attract more directional trading. Any rebounds will face resistance unless supported by changes in economic outlook or central bank policy—both of which are currently subdued. Trading on momentum with this currency pair requires caution. There’s little conviction for buyers, making it risky to attempt catching bottoms without confirmation. Instead, observing for short-term consolidations near support may provide better insights for upcoming movements. Weak retracements should generally be avoided. At this point, we recommend keeping positions tight and being ready to adjust if volatility increases. While there’s potential for movement in either direction, the overall outlook tilts slightly lower unless new fiscal or rate signals emerge. Until then, maintaining positions that respect support levels and are based on tested structures will likely be less risky. Create your live VT Markets account and start trading now.

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