The GBP/USD is currently facing a decline as market participants speculate about a potential rate cut by the Bank of England. There is a 53% chance of rate cuts in August according to market participants, but economists polled predict an 80% chance of a cut. The possibility of a rate cut has caused concerns about global growth which is impacting the exchange rate.
The market participants have raised the probability of a rate cut by the Bank of England at the upcoming meeting. They are also pricing in around 52 basis points of cuts in 2024. A recent Reuters poll conducted among economists revealed that over 80% of them expect the Bank of England to lower its key borrowing rates by 25 basis points to 5% at the August meeting. However, this is a decrease from the expectations in the previous poll which indicated a 97% anticipation for a rate cut. The contrasting expectations between economists and market participants are adding to the uncertainty surrounding the GBP/USD exchange rate.
The possibility of a rate cut in the UK has raised concerns about global growth in the second half of 2024. The UK business optimism index has dropped significantly in Q3, pointing towards a negative sentiment among businesses. This decrease in optimism could be attributed to worries about slower global growth in the coming quarters and expectations of a rise in UK inflation. The shifting sentiments in the market are affecting the positioning of market participants and adding to the volatility in the GBP/USD exchange rate.
The US GDP data expected to be released may trigger further volatility in the GBP/USD exchange rate. The anticipated GDP print of 2% could have a two-fold impact on the US dollar depending on market perception. A positive GDP reading could confirm economic strength and support expectations for rate cuts, potentially weakening the USD. On the other hand, a lower-than-expected GDP could increase recession fears and reduce rate cut expectations, leading to short-term US dollar appreciation. The market sensitivity to data highlights the importance of how this information is perceived and its impact on the GBP/USD exchange rate.
From a technical standpoint, the GBP/USD has been on a declining trend since reaching above the 1.3000 level. The immediate support is at 1.2850, and a break below this level could result in a third test of the ascending trendline. Despite the decline, the price action and structure remain bullish on the daily timeframe. However, a daily candle close below 1.26200 is necessary to shift the overall trend. To achieve this, the pair must navigate through the 100 and 200-day moving averages positioned at 1.2680 and 1.2622 respectively. Conversely, an upward move will face resistance at 1.2950 before the psychological level of 1.3000 becomes significant again.
The GBP/USD exchange rate is facing a decline due to speculation of a rate cut by the Bank of England and concerns about global growth. The contrasting expectations between economists and market participants, along with the impact of US GDP data, are contributing to the volatility in the exchange rate. From a technical perspective, the pair is on a downward trend but still maintains bullish structure. The market sentiment and perception of economic data will play a crucial role in determining the future direction of the GBP/USD exchange rate.
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