- The Bank of England kicked off a cycle of interest rate cuts on Thursday with a quarter-point cut.
- The US ISM manufacturing PMI fell to an 8-month low of 46.8 in July.
- US jobless claims rose, pointing to a weaker labor market.
The GBP/USD outlook points to strong bearish sentiment, with the pound extending its decline following Thursday’s Bank of England rate cut. Meanwhile, the dollar fell after data showed the US economy slowing faster than expected. At the same time, markets raised expectations for a Fed rate cut.
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The Bank of England kicked off a cycle of interest rate cuts on Thursday with a quarter-point cut. While a reduction is likely, the market has yet to fully appreciate it. Therefore, the pound fell after the meeting. The BoE joined the ECB and BoC in lowering borrowing costs ahead of the Fed.
However, the US central bank is also moving closer to cutting interest rates. Notably, at Wednesday’s policy meeting, Powell said the Fed would cut by September if inflation is in line with expectations. However, this perspective remains data dependent.
The dollar was initially stronger on Thursday on safe-haven demand. In particular, tensions in the Middle East increased after the assassination of the leader of Hamas. This incident spooked investors, who dumped risky assets and bought the dollar.
However, that move was later reversed after US data pointed to a rapid economic decline. Notably, the ISM manufacturing PMI fell to an 8-month low of 46.8 in July. Figures below 50 indicate contraction in the sector. Elsewhere, US jobless claims rose, pointing to a weaker labor market. These reports led to increased expectations of a Fed rate cut. Investors expect the Fed to cut rates three times before the end of the year.
GBP/USD key events today
- Average hourly earnings in the US m/m
- Change in non-farm employment in the US
- Unemployment rate in the US
GBP/USD Technical Outlook: Bearish bias strengthens with new swing low
From the technical side, GBP/USD the price extended the decline below the 30-SMA. Meanwhile, the RSI is almost entering the oversold region, strengthening the bearish bias. However, the price reached strong support at the 1.2700 level. If the bears remain strong, GBP/USD will soon break below 1.2700 to retest the 1.2620 support level.
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However, if the support at 1.2700 remains firm, the price could bounce back to retest the 30-SMA before the downtrend resumes.
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