- GBP/USD outlook deteriorates, trading near 1.3350 after a four-week low on Thursday.
- UK inflation risks keep BoE hesitant on rapid easing.
- Strong US GDP and labor data bolster the dollar ahead of the PCE inflation report.
The GBP/USD price is holding just above the 4-week lows marked on Thursday after stronger US data and mixed signals from the Bank of England. Governor Bailey acknowledged that inflation is likely to drop in 2025 with future rate cuts directly tied to the inflation data. His cautious tone contrasts with that of other policymakers, such as Megan Greene, who argued against further easing amid upside risks to inflation.
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The diverging views have left investors uncertain about the BOE’s next move, especially when the UK economy is affected by political noise. Large-scale borrowing proposals to fund housing and calls for the re-nationalization of services have created chaos in gilt markets, when demand is already fragile. A softening labor market and hesitant consumers, holding unusually high savings levels, further weigh on the UK’s domestic growth.
Across the Atlantic, the US dollar has gained strength after solid US data, with the second-quarter GDP revised up to 3.8% and jobless claims falling to the lowest level since July. These signals indicate US economic resilience, which dampens the odds of aggressive rate cuts by the Fed. While markets still expect further rate cuts this year, Fed Chair Powell has underscored that the decision will depend on the inflation and employment data. This backdrop favors the dollar against the pound.
Key Events Ahead: US Core PCE
The Friday’s US Core PCE Index data is key to watch, with forecasts pointing at a 0.2% monthly and 2.9% yearly rise. A hotter reading would further strengthen the dollar. Additionally, Fed speeches from Barkin and Bowman are due, along with UoM consumer sentiment data.
GBP/USD Technical Outlook: Bulls Shaken Under 20-SMA
The GBP/USD price looks feeble, dropping well below the 20-period MA and breaking the key swing low of 1.3340. The price has slightly moved up from the fresh 4-week lows, with weaker price action indicating further losses towards the 1.3300 handle. On breaking the level, the price could test the 1.3260 area ahead of 1.3200 and 1.3150.
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On the other hand, sustaining above the immediate resistance of 1.3380 could gather buying traction and lead to a meaningful recovery above 1.3400, potentially testing the 1.3450 area. However, the probability of the upside scenario is low, with more consolidation at current levels in the wake of market catalysts that could ignite volatility.
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