(MENAFN- Daily Forex)
The possibility of a significant rebound in the GBP/USD exchange rate seems remote in the coming days. According to Forex market trading, the GBP/USD pair has stabilized above the 1.30 area in recent days. It is confirming that this important psychological visual support has something to offer the falling pound.
However, last week's confirmed break below the 50-day moving average (DMA) – currently at 1.3105 – represents a significant potential technical breakdown, meaning that the recent wave of selling could turn into something more than just a pullback. Meanwhile, the US dollar's October rally appears to be running out of steam, and last week we reported that the market may be reaching the end of its readjustment period with the realization that the Fed will cut interest rates less in 2024.
Commenting on this, Kate Hawkes, head of FX analysis at Societe Generale, said: "It seems to me that the rise in US yields has almost ended, and what we will continue to see is a volatile, not a volatile, exchange rate market. Hurricanes will spoil the jobs report next month, which may argue for a 25-basis-point cut instead of a stop, in my opinion."
Top Forex Brokers1 Get Started 74% of retail CFD accounts lose money Technical forecasts for the GBP/USD pair today:
According to the technical outlook, the fading strength of the dollar is reflected in reaching the bottom in the Relative Strength Index on the daily chart of the GBP/USD pair at 40, where it seems to be turning upwards again. However, any possibility of a rebound in the GBP/USD pair seems limited this week and we believe that strength will be resisted by the 50-day moving average, indicating that gains will fade at 1.3105.
According to the economic calendar, the UK calendar imposes downside risks. We have a busy data calendar in the UK this week and we believe that the GBP/USD exchange rate will come under pressure if inflation and/or wage rates are lower than expected. As is well known, the pound sterling is very sensitive to market expectations about the outlook for interest rates in the UK, and a decline in this data will push investors to bet on two more consecutive cuts in interest rates during 2024.
Currently, the Bank of England is expected to cut interest rates in November and leave them unchanged in December. But weak data this week means December will come back into play. Average earnings, due out on Tuesday, are expected to show growth of 5%, down from 5.1%, and when bonuses are added, the figure is expected to be 3.8%. Anything less than that would put the pound under pressure and make retesting the 1.3000 level a real possibility.
Survey data has consistently pointed to a slowdown in the UK economy since mid-summer, leading to a slowdown in the Labor market and easing wage pressures. This, in turn, is expected to put pressure on inflation. Accordingly, UK inflation figures on Wednesday will be closely watched, with the headline CPI rate expected to come in at 1.9%, putting it back below the Bank of England's 2.0% target.
Furthermore, UK inflation figures will be closely watched on Wednesday. The headline CPI rate is expected to be 1.9%, which is back below the Bank of England's 2.0% target. However, sterling is sensitive to interest rate expectations; two weeks ago, it fell sharply after Bank of England Governor Andrew Bailey said the bank would be "more active" in cutting rates if the data allowed.
Could this week's fall in headline inflation to below 2.0% give the“active” Bailey the ammunition he's been looking for?
We think it could, as the Bank of England is likely to want to overlook the fact that falling oil prices will be behind the fall in inflation. In this regard, Robert Wood, chief UK economist at Pantheon Macroeconomics, says: "All of the relative decline in the MPC's forecast is due to falling car fuel prices."
Meanwhile, keep an eye on UK services inflation, which is forecast to come in at 5.4%. This is arguably the most important figure on the inflation calendar this week in terms of domestic inflation, the kind the BoE can target. If services inflation falls below 5.4%, sterling will come under pressure as the market increases bets on adding a December rate cut to the mix. Underlying price pressures are expected to remain on a downward trajectory for the foreseeable future. This should ease concerns about persistent inflation and thus reduce the MPC's ability to adopt a“proactive” stance gradually.
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