Created on October 17, 2024

• The GBP/USD exchange rate is testing the key level of 1.30, with a break potentially opening the door to the 1.2820 level.
• Recently, the pound sterling has declined in mid-week trading after the release of softer UK inflation data that raised the possibility of further interest rate cuts by the Bank of England in 2024.
• At the time of writing, the pair reached a two-month low of 1.2977 and is currently stabilizing around 1.2990 at the time of writing.
• Commenting on the pair’s performance, Alex Kopcewicz, Senior Market Analyst at FXPRO, said, “The British pound has fallen below the 1.30 level against the US dollar after weak inflation data across the board.
• This sent the pound to a two-month low on speculation that the Bank of England will cut interest rates in the coming months.”

The psychological support level of 1.30 for GBP/USD is closely watched by analysts and market participants as an important level. However, analysts believe that sellers will emerge strongly and enter selling trades if 1.30 gives way. In this regard, JP Morgan’s trading desk says, “Through the 1.30 support, the next level of interest is the 100D (moving average) at 1.2950 and then the 1.2820/50 support range would be a fare initial target.”

According to Forex Market Trading, the pound fell against the dollar, the euro and all of its G10 peers after the UK headline inflation rate fell to 1.7% year-on-year in September. Meanwhile, the Bank of England’s inflation rate fell from 5.6% to 4.9%. Accordingly, Robert Howard, market analyst at Reuters, said: “The pound could extend lower towards the 1.28 support if the UK inflation data is cooler than expected, as this would raise the risk of two BoE rate cuts before Christmas.”

Now, 25 basis point cuts are fully priced in for the November 07 Bank of England interest rate meeting, with a 70% chance of another 25-basis point cut now priced in for December. Nick Andrews, chief FX analyst at HSBC, says, “However, the Bank of England’s endpoint is still relatively high at 3.51%, which means that GBP-USD could weaken in the coming months.”

Joe Maher, Associate Economist at Capital Economics, said, “We expect the pound to weaken by around 4% against the euro and around 1% against the US dollar by the end of 2025. We expect the yield gaps to move against the pound, especially against the euro, over the next year. Accordingly, we believe that the Bank of England will cut interest rates by much more than what is currently being discounted in the financial markets.

Technical forecasts for the GPB/USD pair today:

Based on the daily chart performance attached, the overall downward trend of the GBP/USD pair is gaining strength. As mentioned earlier, a move below the psychological support level of 1.3000 will confirm the bears’ strong control of the trend and signal a stronger downward move, especially if the US dollar gains additional positive momentum from today’s US retail sales and weekly jobless claims figures. If this happens, the next support levels will be 1.2920 and 1.2840, respectively. Furthermore, these levels are sufficient to push technical indicators towards oversold levels. Conversely, the first break of the current trend requires stabilization above the resistance level of 1.3160. 

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