November 17, 2024 – Written by Frank Davies

STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Slides as Republicans Gain Control of Congress

The Pound to US Dollar (GBP/USD) exchange rate dropped to a new multi-month low on Thursday as investor demand for the USD remained strong.

At the time of writing, GBP/USD was trading around $1.2644, down approximately 0.5% from Thursday’s opening levels.

The US Dollar (USD) climbed on Thursday, continuing its upward trend following Donald Trump’s election win.

The recent boost in USD came as Republicans secured a majority in the House of Representatives, granting the party control of all branches of the US government.

With Trump now poised to advance his economic policies more easily, USD exchange rates rose as investors anticipate his tax cuts and tariffs may fuel inflation, potentially leading the Federal Reserve to keep US interest rates elevated for longer.

The Pound (GBP) struggled to gain traction against the US Dollar on Thursday, as GBP investors remained cautious ahead of a speech from Bank of England (BoE) Governor Andrew Bailey.

Bailey’s comments will follow recent remarks by BoE official Catherine Mann, who discussed the risks of rising inflation in the UK and suggested rates might need to remain high.

If Bailey echoes this sentiment, it could dampen market expectations of a BoE rate cut in December and help the GBP/USD exchange rate recover from its current lows.

GBP/USD Forecast: Slowing UK GDP to Pressure the Pound?

Looking toward the end of the week, the Pound to US Dollar (GBP/USD) exchange rate may face further headwinds with the release of the UK’s latest GDP figures.

Preliminary data for the third quarter is expected to show that UK economic growth slowed from 0.5% to just 0.2%, raising concerns about the country’s economic outlook and likely weighing on Sterling.

Meanwhile, the release of US retail sales data could limit the US Dollar’s recent gains if the figures indicate a slowdown in consumer spending last month.

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• Trump’s policies will likely boost economic growth and inflation.

• The Fed might be forced to keep rates at a restrictive level longer.

• The UK economy unexpectedly contracted.

The GBP/USD weekly forecast is bleak as the pound collapses against a strong dollar amid the Trump trade weaker UK GDP.

Ups and downs of GBP/USD

The GBP/USD pair had a very bearish week as the Trump trade boosted the dollar and weighed on the pound. Despite various economic reports from the UK and the US, markets were focused on the looming shift in policies in the US. 

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Trump’s policies will likely boost economic growth and inflation. Therefore, the Fed might be forced to keep rates at a restrictive level longer. High interest rates boost Treasury yields and the greenback. 

Meanwhile, US inflation data aligned with expectations, leaving rate-cut bets mostly unchanged. However, Powell’s remarks that there was no hurry to cut rates slashed bets to below 50%. On the other hand, the UK economy unexpectedly contracted, further weighing on the pound.

Next week’s key events for GBP/USD

Next week, market participants will focus on key economic reports from the UK, including consumer inflation, retail sales, and business activity. Inflation in the UK recently dropped below the Bank of England’s target to hit 1.7%. The decline was initially a big motivator for the central bank to lower borrowing costs.

However, policymakers remained cautious, noting that the economy might perform better than expected in the medium term. Therefore, inflation might rebound. A better-than-expected CPI reading will lower rate-cut expectations and boost the pound. Meanwhile, a downbeat report will weigh on the currency.

GBP/USD weekly technical forecast: Decline could pause at 1.2600  

On the technical side, the GBP/USD price has plunged to the 1.2600 support level. The new swing long has put the price well below the 22-SMA, showing bears are in the lead. At the same time, the RSI has reached the oversold region, suggesting solid bearish momentum.

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This week, the GBP/USD price only made bearish candles, showing a strong bias. The decline started after the price broke below and retested the 1.3002 key level. At the same time, the price was retesting the 22-SMA as resistance. It bounced lower, breaching the 1.2801 support before pausing at the 1.2600 level. However, after such a steep decline, the price might need a pause next week before it continues lower.

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• The Pound Sterling sellers refused to give up as the US Dollar remained in command.
• GBP/USD eyes UK and US economic data for some relief.
• Technically, downside risks remain intact for the Pound Sterling on a daily bearish RSI.

The Pound Sterling (GBP) booked the seventh straight weekly loss against the US Dollar (USD), with the GBP/USD pair falling as low as 1.2630 during the week.

Pound Sterling gave in to the US Dollar’s dominance

The USD rode the Trump trades optimism wave higher following US President-elect Donald Trump’s victory, clinching the highest level in a year against its major currency rivals. Markets build on the narrative that Trump’s tax cuts and trade tariff policies will likely rekindle inflationary pressures, calling for higher interest rates and eventually supporting the Greenback, US stocks and US Treasury bond yields.

The buying interest around the USD remained unabated, slamming the GBP/USD pair to the lowest level since July at 1.2630. The Greenback received an added boost from fading expectations that the US Federal Reserve (Fed) will continue its easing trajectory after the US election outcome.

Fed Chair Jerome Powell echoed his colleagues’ caution on inflation and that the Fed could remain patient with its policy approach. Powell said in his speech on Thursday that there was no need to rush rate cuts with the economy still growing and the job market solid, despite inflation still above the 2.0% target, tempering expectations for a rate cut next month, per Reuters.

The sticky US Consumer Price Index (CPI) and hot Producer Price Index (PPI) data for October also backed the hawkish shift in the Fed’s policy stance. US CPI rose 2.6% annually in October, coming in higher than the 2.4% growth in September while meeting the forecast. The annual core CPI inflation steadied at 3.3% in the same period vs. 3.3% expected.

Meanwhile, the annual headline factory-gate inflation rose to 2.4% in October after increasing 1.9% in September, indicating that disinflation is losing momentum. Markets now price in a less than 60% chance of a 25 basis points (Fed) rate reduction next month, the CME Group’s Fed Watch Tool showed, down from 82.5% in the prior session.

The bullish undertone in the Greenback hindered the Pound Sterling from capitalizing on prudent remarks from the Bank of England (BoE) policymakers concerning the bank’s path forward on interest rates. BoE Chief Economist, Huw Pill, said that the latest “labor data shows pay growth still at high levels,” adding that “further rate cuts is likely to be a gradual process.”

Meanwhile, his colleague Catherine Mann, the hawkish dissenter, noted that “central banks must ensure these inflation pressures do not get embedded. I do not think high interest rates are bad for high productivity.”

Heading into the weekend, Pound Sterling sellers took a breather as they awaited the US Retail Sales report for October for further incentives in trading the GBP/USD pair.

The US Dollar gained some pips following upbeat data, as Retail Sales rose by 0.4% MoM in October, better than the 0.3% anticipated by market players. Additionally, the September reading was upwardly revised from 0.4% to 0.8%.

The week ahead: UK inflation data and global PMIs eyed

After a busy second half of the last week, the early part of this week seems to be quiet data-wise from both sides of the Atlantic until the release of the UK CPI inflation report on Wednesday.

In the meantime, the appearances by the BoE and Fed policymakers and mid-tier US housing data will keep traders entertained.

Wednesday’s UK CPI data will hold the key to influencing the market expectations of future rate cuts by the BoE as policymakers assess the impact of the Autumn Budget on the economy and inflation prospects.

BoE official Dave Ramsden is due to speak about monetary policy at the University of Leeds later on Wednesday.

Central bankers’ speeches will dominate on Thursday amid the weekly US Jobless Claims data release.

S&P Global preliminary Purchasing Managers’ Index (PMI) data from the UK and the US will wrap a relatively data-quiet week.

GBP/USD: Technical Outlook

The daily technical setup for the GBP/USD pair suggests that sellers will continue jumping on any recovery attempts as the 14-day Relative Strength Index (RSI) remains in negative territory.

With the previous week’s dual Bear Crosses in play, the downside risks remain intact for the pair.

The Pound Sterling needs a weekly candlestick closing below the August 8 low of 1.2665 to stretch the downside momentum.

If the selling pressure intensifies, sellers could attack the 1.2550 psychological barrier. On a failure to defend that level, the May 9 low of 1.2446 will be challenged.  

However, the pair could see a brief upside correction before the next leg down kicks in.

Recapturing the 200-day Simple Moving Average (SMA) at 1.2819 is critical to initiating any meaningful recovery in the near term.  

The next topside barrier aligns at the 21-day SMA at 1.2908.

The EUR/USD pair has recently been on a bearish trajectory, with multiple economic and geopolitical factors pointing to continued downward pressure over the coming months. As inflation concerns ease, central banks have made dovish rate decisions and softening U.S. jobs data influences the bearish sentiment for this pair. Forex traders are now closely watching for signals on how to capitalize on the pair’s declining exchange rate. 

This EUR/USD forecast summarizes Benzinga’s technical and fundamental analysis for the currency pair, highlighting key support and resistance levels and potential influences from upcoming economic indicators and events. With a generally bearish outlook and more losses expected for EUR/USD, understanding these dynamics can present strategic opportunities for forex traders following this trend. Read on for our in-depth market forecast, providing actionable insights into trading the EUR/USD currency pair.

Current Market Analysis

The EUR/USD currency pair has experienced a notable decline recently. Some of the key factors influencing the forex market’s bearish move in this currency pair include:

• Economic Data: Recent economic indicators from both the eurozone and the United States have significantly influenced the EUR/USD exchange rate. For instance, market participants have closely watched Germany’s ZEW survey and the U.S. Federal Reserve’s policy decisions.
• Central Bank Policies: The Federal Reserve recently announced a 25 basis point cut in the Fed Funds Rate, bringing it down to 4.50%-4.75%. This decision was widely expected, influenced by the Fed’s assessment that inflation is increasing closer to its 2% target, while the U.S. labor market has shown signs of easing. In the eurozone, expectations have increased for further ECB rate cuts.
• Geopolitical Events: Donald Trump’s recent election victory as President of the United States has also impacted the EUR/USD exchange rate, with the dollar strengthening in response to anticipated policies under the Trump administration, including potential trade tariffs.