GBP/USD Price Analysis – March 11, 2024

Daily Price Outlook

The GBP/USD pair failed to halt its downward rally and still showed a bearish bias around the 1.2847 level. However, the reason for its downward trend can be attributed to the renewed strength of the US dollar, which recently dropped on the back of downbeat US unemployment data. Although it gained traction in the wake of upbeat US Nonfarm Payrolls data. Apart from this, the losses in the GBP/USD pair were further bolstered by the narrowing policy divergence between the Federal Reserve and the Bank of England, exerting downward pressure on the pound.

Investors are also awaiting employment data from the United Kingdom (UK), including the ILO Unemployment Rate (3M) and Employment Change figures, scheduled for release on Tuesday. Additionally, the Consumer Price Index data for February will also be in the spotlight.

Interest Rate Cut Speculation Pressures GBP/USD Amid Positive UK Economic Sentiment

On the UK front, investors are predicting that the Bank of England (BoE) might start cutting interest rates as early as May, with expectations of three more cuts throughout 2024. This news is driving a bearish tone for the GBP/USD pair as markets anticipate the Federal Reserve (Fed) to cut interest rates before the BoE, potentially narrowing the policy gap between the two central banks.

Federal Reserve Chair Jerome Powell recently hinted at potential rate cuts this year, dependent on inflation aligning with the Fed's 2% target. Therefore, the anticipation of interest rate cuts by the Bank of England, coupled with the possibility of earlier cuts by the Federal Reserve, is creating a bearish outlook for the GBP/USD pair, narrowing the policy gap between the two central banks.

In contrast to this, the positive sentiment from the UK's Spring Budget announcement, coupled with forecasted stronger economic growth, is generally positive for the GBP.

US Dollar Rebounds on Upbeat Nonfarm Payrolls Data

On the US front, the broad-based US dollar managed to stop its losing streak and regained its strength at the start of the week. The previous losses in the dollar were mainly driven by the rise in the US unemployment rate, leading to expectations that the Federal Reserve will lower interest rates in June. However, the release of upbeat US Nonfarm Payrolls data helped the US dollar to gain traction.

On the data front, the US economy added 275,000 new jobs in February, beating expectations, but January's figures were revised down. Wage growth was slightly lower than expected. The chance of a Fed rate cut in May increased to 30% after the report, but June is still expected to be the most likely time for any such action.

On the positive side, the US Nonfarm Payrolls in February rose by 275,000, surpassing January's 229,000 and beating the expected 200,000. However, US Average Hourly Earnings (YoY) grew by 4.3%, slightly below both the estimated and previous reading of 4.4%. Monthly, there was a 0.1% increase, lower than the anticipated 0.3% and the previous month's 0.5%.

Therefore, the US dollar rebounded after a losing streak, buoyed by better-than-expected Nonfarm Payrolls. However, concerns about a Fed rate cut persist, impacting GBP/USD with uncertainty and potential volatility.

GBP/USD - Technical Analysis

The GBP/USD pair's subtle decline to 1.28512, marking a 0.03% decrease on March 11, reveals a cautious market sentiment. Analyzing the 4-hour chart, the currency pair's technical structure showcases a pivot point at 1.28308, which serves as a baseline for short-term directional biases. Resistance levels identified at 1.28950, 1.29903, and 1.30912 delineate potential ceilings that could cap upward movements, whereas support levels at 1.27654, 1.26955, and 1.25977 suggest areas where buying interest might re-emerge.

The Relative Strength Index (RSI) hovering around 70 signals that GBP/USD is approaching overbought territory, suggesting that a corrective pullback might be on the horizon. Meanwhile, the 50-Day Exponential Moving Average (EMA) at 1.26657 underscores a bullish undertone, having maintained a trajectory above this moving average.

Given these observations, the trading strategy recommends initiating a sell position below 1.28939, targeting a take-profit level at 1.27836, while employing a stop loss at 1.29503 to mitigate potential losses.