GBP/USD Price Analysis – Oct 02, 2023

Daily Price Outlook

Despite a recent dip, the British Pound (GBP) is bouncing back as investors believe the UK is improving at managing the impact of higher interest rates from the Bank of England (BoE). It is worth noting that the BoE raised rates to 5.25% to protect the economy, but now they have hit a pause.

However, the GBP/USD pair is struggling, sitting below the 1.2200 mark, and has slumped for five weeks. Currently, it's around 1.2180, down 0.16% for the day. This is mainly due to the US Dollar (USD) gaining strength, which puts pressure on the GBP/USD pair.

US Inflation and Economic Indicators Impacting Currency Markets

According to the US Bureau of Economic Analysis, the PCE Price Index, a measure of inflation, rose by 3.5% compared to the same time last year in August, slightly up from July's 3.4%. The Core PCE Price Index, which the Federal Reserve closely watches, increased by 3.9% year-on-year, down from 4.3% in July.

Every month, the PCE Price Index and Core PCE Price Index went up by 0.4% and 0.1%, respectively, below what experts expected. Personal income and personal spending both increased by 0.4% month-on-month, as predicted.

Therefore, Fed officials have differing views on interest rates, with some suggesting caution while awaiting more data. Federal Reserve Chair Jerome Powell's upcoming speech could impact the US dollar and the GBP/USD pair.

BoE Policy and US Economic Data Impact GBP/USD

Conversely, BoE policymakers have mentioned that they could either raise or keep interest rates steady following their recent decision to pause rate hikes. However, the market expects the BoE to stick with its current monetary policy in the upcoming meeting, putting pressure on the British Pound (GBP).

With no significant UK economic data coming out this week, the GBP/USD pair's direction depends on the US Dollar's performance. On Monday, the US ISM Manufacturing PMI for September and hearing from Fed Chair Powell is in the spotlight.

Later in the week, the US ADP Employment Change and ISM Services PMI for September will be the focus. The focus will be on Friday's US nonfarm payrolls report.

GBP/USD - Technical Analysis

The GBP/USD pair recently reacted bearishly upon hitting the 1.2280 mark, suggesting a possible return to its primary downward trend. This is further illustrated by the bearish channel on the chart, pointing towards a potential descent to the 1.2110 level.

Today's outlook for the pair is bearish, a sentiment backed by the negative influence of the 50-Day EMA. However, the 1.2280 level remains pivotal. If the GBP/USD surpasses this resistance, we might witness a shift towards a bullish correction, targeting 1.2350. Expected trading for the day ranges between support at 1.2100 and resistance at 1.2250.

Regarding technical indicators, the RSI stands at 46, portraying a neutral to slightly bearish stance. An RSI below 50 tends to hint at a bearish sentiment, though it's still distant from the extreme oversold benchmark of 30.

In summary, while the short-term forecast for GBP/USD leans bearish, traders should watch the 1.2280 level closely. Surpassing this resistance could alter the immediate market trajectory.