GBP/USD Price Analysis – Sep 04, 2023

Daily Price Outlook

The GBP/USD currency pair held above 1.2600 during the early European session, trading at 1.2612 with a 0.17% gain. Buyers showed interest above 1.2600. However, US Nonfarm Payrolls for August exceeded expectations, and Manufacturing PMI improved to 47.6. On the other hand, the UK's Manufacturing PMI dropped from 45.3 in July to 43.0 in August. This led to speculation that the Federal Reserve might stop raising interest rates, weakening the US dollar. Consequently, the GBP/USD pair benefited from these dynamics, recovering recent losses and continuing its upward trend above 1.2600.

US Economic Developments and Their Impact on the US Dollar and GBP/USD Pair

It's worth noting that the US markets are quiet due to the Labor Day holiday following a busy week of economic news. US Nonfarm Payrolls for August beat expectations at 187K, and the Unemployment Rate dropped to 3.8%. However, Average Hourly Earnings rose slightly less than expected at 0.2%. US Manufacturing PMI also improved. This has led to speculation that the Federal Reserve might stop raising interest rates, with markets now doubting a rate hike in September and reduced chances for November and December. Despite a modest weekly gain, the US Dollar remains in positive territory for the sixth consecutive week.

Hence, the news of better-than-expected US Nonfarm Payrolls and a potential pause in Federal Reserve rate hikes has put some pressure on the US Dollar, causing it to weaken slightly. This contributed to a positive move in the GBP/USD currency pair as the Pound (GBP) gained strength against the US Dollar on the expectation of a less hawkish Fed.

British Factories Struggle in August Amidst Economic Concerns

Elsewhere, the recent data revealed that British factories had a tough time in August, with their weakest performance since the COVID-19 pandemic began. In the meantime, orders dropped significantly due to higher interest rates, as the Manufacturing PMI fell from 45.3 in July to 43.0, staying below the 50 threshold for six months.

Traders now expect a 25 basis points rate hike in the upcoming meeting, driven by concerns about high inflation from BoE Chief Economist Huw Pill. However, this aggressive tightening by the Bank of England is worrying for the UK economy and is putting pressure on the British Pound.

This weak factory performance and concerns about the Bank's policy could negatively impact the GBP/USD currency pair, potentially causing its value to decline.

GBP/USD - Technical analysis

The GBP/USD pair has distinctly extended its downward movement, decisively surpassing our initial target of 1.2625 and settling beneath it. This move solidifies the dominance of the bearish trend both in intraday and short-term scenarios, following the evident bearish channel depicted on the chart. Our subsequent target is set at 1.2505. The projected trading boundaries for today are a support at 1.2500 and a resistance at 1.2660.

The EMA50 consistently reinforces the anticipated bearish momentum. This prediction stands as long as the pair doesn't breach the 1.2625 level and sustain above it.

Consequently, our analysis remains bearish for both the intraday and short-term, driven by the downward force exerted by the EMA50. A breach and a subsequent stabilization above 1.2625 could initiate potential recovery endeavors, with an initial aim at the 1.2625 zone.