GBP/USD seems vulnerable below 1.3000, its lowest level since August 20


  • GBP/USD consolidates Wednesday’s softer UK CPI-inspired fall to over a two-month low.
  • Bets for a BoE rate cut in November weigh on the GBP and the major amid a bullish USD.
  • Hopes for a less aggressive Fed policy easing favor the USD bulls ahead of the US data.

The GBP/USD pair remains below the 1.3000 psychological mark during the Asian session on Thursday and is currently placed near its lowest level since August 20 touched the previous day. Meanwhile, the fundamental backdrop seems tilted firmly in favor of bearish traders and suggests that the path of least resistance for spot prices is to the downside. 

Data published on Wednesday showed that the annual UK Consumer Price Index (CPI) decelerated from 2.2% in August to 1.7% last month, marking the lowest reading since April 2021. The data lifted bets for an interest rate cut by the Bank of England (BoE) in November, which continues to undermine the British Pound (GBP). Apart from this, the recent US Dollar (USD) rally, to the highest level since early August, validates the near-term negative outlook for the GBP/USD pair. 

Investors now seem convinced that the Federal Reserve (Fed) will proceed with modest interest rate cuts over the next year. This keeps the yield on the benchmark 10-year US government bond above the 4% threshold and continues to underpin the USD. Apart from this, persistent geopolitical risks stemming from the ongoing conflicts in the Middle East benefit the Greenback's relative safe-haven status and support prospects for a further depreciating move for the GBP/USD pair. 

Even from a technical perspective, the overnight breakdown below a one-week-old trading range and acceptance below the 1.3000 psychological mark add credence to the bearish setup. Hence, some follow-through weakness towards the 100-day Simple Moving Average (SMA) support near the 1.2955 region, en route to the 1.2900 mark, looks like a distinct possibility. Traders now look forward to the US macro releases for some impetus later during the early North American session. 

Thursday's US economic docket features monthly Retails Sales report, the usual Weekly Initial Jobless Claims, the Philly Fed Manufacturing Index and Industrial Production data. This, along with the US bond yields and geopolitical developments, will drive the USD demand and produce short-term trading opportunities around the GBP/USD pair.

BoE FAQs

The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).

When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.

In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.

Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.

 

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

AUD/USD holds steady near 0.6250 ahead of RBA Minutes

AUD/USD holds steady near 0.6250 ahead of RBA Minutes

The AUD/USD pair trades on a flat note around 0.6250 during the early Asian session on Monday. Traders brace for the Reserve Bank of Australia Minutes released on Monday for some insight into the interest rate outlook. 

AUD/USD News
USD/JPY consolidates around 156.50 area; bullish bias remains

USD/JPY consolidates around 156.50 area; bullish bias remains

USD/JPY holds steady around the mid-156.00s at the start of a new week and for now, seems to have stalled a modest pullback from the 158.00 neighborhood, or over a five-month top touched on Friday. Doubts over when the BoJ could hike rates again and a positive risk tone undermine the safe-haven JPY. 

USD/JPY News
Gold: Is another record-setting year in the books in 2025?

Gold: Is another record-setting year in the books in 2025?

Gold benefited from escalating geopolitical tensions and the global shift toward a looser monetary policy environment throughout 2024, setting a new all-time high at $2,790 and rising around 25% for the year. 

Gold News
Week ahead: No festive cheer for the markets after hawkish Fed

Week ahead: No festive cheer for the markets after hawkish Fed

US and Japanese data in focus as markets wind down for Christmas. Gold and stocks bruised by Fed, but can the US dollar extend its gains? Risk of volatility amid thin trading and Treasury auctions.

Read more
Bank of England stays on hold, but a dovish front is building

Bank of England stays on hold, but a dovish front is building

Bank of England rates were maintained at 4.75% today, in line with expectations. However, the 6-3 vote split sent a moderately dovish signal to markets, prompting some dovish repricing and a weaker pound. We remain more dovish than market pricing for 2025.

Read more
Best Forex Brokers with Low Spreads

Best Forex Brokers with Low Spreads

VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.

Read More

Forex MAJORS

Cryptocurrencies

Signatures