GBP/USD forecast: US dollar rebounds ahead of US CPI, UK GDP

Article By: ,  Market Analyst

The US dollar rebounded strongly on Friday, especially against the commodity dollars on the back of disappointment from China’s latest stimulus announcement. The euro and pound drifted lower throughout the day, with the EUR/USD testing a multi-month low beneath the 1.07 handle. The pound, which had rallied following the Bank of England’s decision to cut interest rates on Thursday, remained on the front foot against the euro, sending the EUR/GBP pair to near a 2-year low of around 0.8300 by Friday’s European close. But the cable was held back by the US dollar, which despite giving a big chunk of its post-election gains on Thursday, rebounded strongly on Friday, giving a bearish GBP/USD forecast for the week ahead.

 

 

US dollar rebounds amid growth optimism

 

The greenback found support on the back of a stronger UoM Consumer Sentiment data, which showed an improvement to 73.0 from an upwardly revised 70.5 reading the month before. Meanwhile, investors were still digesting the impact of Trump’s victory and the Fed’s decision to cut rates by 25 basis points on Thursday. The Fed Chair Powell was tight-lipped about whether it would slow down the pace of rate cuts in light of the Republican’s clean sweep victory and what that might mean in terms of fiscal policy. But despite Thursday’s selling, investors refused to turn bearish on the dollar meaningfully, amid expectations of increased spending and tax cuts under Trump. This, together with stronger data on Friday (Consumer Sentiment), helped to push the dollar higher again and sent the GBP/USD back below 1.29 handle.

 

BoE’s “gradual” tightening not enough to lift GBP/USD forecast

 

In as far as the Bank of England’s rate decision was concerned, well they too cut rates by 25 basis points, but warned that it can’t lower rates “too quickly or by too much.” Governor Bailey refrained from defining what “gradual” would mean for the pace of future cuts, something the central bank had mentioned in the rate statement. This helped to push the GBP/USD higher on Thursday, which was aided by a sharp drop in the US dollar amid profit-taking from the Trump victory gains. By Friday, however, it was business as usual as the pair resumed lower thanks to a rebounding US dollar.

 

Week ahead: UK GDP and US CPI coming up

 

The focus is now turning to CPI data from both the UK and US in the week ahead.

 

US CPI

Wednesday, November 13

13:30 GMT

 

Last month saw CPI come in slightly ahead of expectations, printing 2.4% y/y for September versus 2.3% expected, albeit it was down from 2.5% the month before. This helped to keep the dollar on the front foot leading up to the US presidential election. With Trump’s resounding victory and his plans for tariffs and tax cuts set for 2025, inflation may remain elevated in the US and prevent the Fed from loosening its belt further. In light of that risk, the Fed and the markets may again start paying closer attention to US inflation data. A stronger data could help pressurise the likes of EUR/USD and other currencies subject to tariffs under Trump. The GBP/USD could also drop, should CPI provide US dollar find more reason to rally.

 

UK GDP

Thursday, November 14

07:00 GMT

 

As mentioned, the Bank of England lowered rates by 25 basis points to 4.75% last week, and Governor Bailey refrained from defining what “gradual” would mean for the pace of future cuts. It is clear a lot will now depend on incoming data, putting this week’s data dump into a sharp focus. As well as monthly and quarterly GDP estimates, we will have various other economic indicators released at the same time.

 

The UK growth data will be watched closely by GBP traders. The recent budget is expected to lift inflation slightly, adding around 0.5% to CPI at its peak according to the BoE. However, the BoE isn’t expecting significant economic growth from this budget. As it stands, the Bank intends to continue cutting rates gradually over the coming months. This should keep the GBP under pressure. But if we see improvement in UK data, then this could support the GBP/USD forecast.

 

Technical GBP/USD forecast

 

Source: TradingView.com

 

Last week, the GBP/USD held below the key 1.30 handle after breaking below it. For as long as it now holds below this level, the path of least resistance will remain to the downside, unless we see a major reversal pattern at lower levels first to help turn the technical GBP/USD forecast bullish.

 

Incidentally, the 1.30 handle is also where the backside of the broken trend line that had been in place since rates bottomed in September 20222, when Liz Truss’s mini budget debacle had sent the GBP plunging.

 

In terms of potential support levels to watch, well, as before, the area between 1.2780 to 1.2870 is now quite important for this pair. Here, old support and resistance converge with the technically important 200-day moving average. Below this zone, this’s year’s opening level of 1.2731 comes into focus, followed by the August low at 1.2665.

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

 

 

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.

© FOREX.COM 2024