- British inflation reached an annual rate of 3.9 percent in October, which is the lowest level in two years.
- Investors have fully paid for the Bank of England rate cut until May 2024.
- Analysts expect core U.S. personal consumption expenditures to ease on Friday.
The GBP/USD forecast maintained its bearish outlook on Thursday as the pair struggled with losses ahead of the much-anticipated US GDP figures. On Wednesday, there was a significant drop in the currency, which marked its biggest drop in two months. This decline is a result of UK inflation, which fell below expectations.
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British inflation reached an annual rate of 3.9 percent in October, which is the lowest level in two years. Accordingly, traders factored in a potential rate cut by the Bank of England back in May.
Notably, the year-on-year increase in consumer prices has fallen, hitting its lowest level since September 2021. Furthermore, investors have fully cut the Bank of England rate until May 2024 and now see an almost 50% chance of a cut by March.
Vasiliy Serebriakov of UBS noted that several banks have noticed an advance in pricing for interest rate cuts. Furthermore, he noted that the Bank of England had lagged slightly due to higher inflation, but was now aligning its direction with the others.
Serebryakov also noted that the pound has seen positive momentum recently. Thus, the current trend represents a reversal of some of those previous trends.
Meanwhile, analysts expect a similar softening in core US spending data on Friday. They believe the annual inflation rate will slow to 3.3%, the lowest rate since 2021. There were also expectations of further dollar weakness amid projections of 150 basis points of Federal Reserve tapering in 2024. However, investors remained cautious, temporarily preventing further dollar selling.
GBP/USD key events today
- Final US GDP q/q
- US unemployment claims
GBP/USD Technical Forecast: Price is ready for a lower low
On the technical side, the pound is on the verge of breaking below strong support to make a lower low. This would further confirm the new bearish direction. The trend recently reversed when the price broke below the 30-SMA and the RSI fell into sub-50 territory.
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This came after the bulls weakened and failed to make a higher high. Instead, the price made a lower high and may soon make a lower low. Furthermore, a continuation of the downtrend would likely lead to a break below the support level at 1.2601. The target for the bears is at the fib extension level of 1,618.
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