- The dollar rallied as investors sought safety amid rising tensions in the Middle East.
- Market participants estimate a 59% chance of another 50 basis point rate cut in November.
- Sterling has gained about 5.4% against the dollar this year.
The GBP/USD forecast shows a sudden shift in sentiment to the downside as the dollar recovers from a 14-month low. At the same time, the pound was weak as recent economic data pointed to a weaker outlook.
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The dollar rallied against most currencies on Wednesday and Thursday as investors sought safety amid rising tensions in the Middle East. The conflict between Hezbollah and Israel in Lebanon has escalated, with the two groups exchanging missiles. The US and other partners have announced that they are working tirelessly to avoid all-out war between the two.
Despite the recovery of the dollar, the fundamentals point to an even worse side. The Fed recently cut interest rates by a whopping 50 basis points, kicking off a long-awaited easing cycle. The rate cut sent the dollar to new lows before recovering. However, the US central bank announced more interest rate cuts. As a result, market participants estimate a 59% chance of another 50 basis point rate cut in November.
However, incoming data will continue to shape this outlook. The next big report is the core PCE index, which will show the state of inflation. Market participants will also be watching GDP data later today.
On the other hand, the pound fell after data in the previous session revealed a significant drop in consumer sentiment in the UK. The number fell from -8 to -21 in September. Moreover, it came after soft data on business activity showed a slowing economy. Still, sterling has gained about 5.4% against the dollar this year as the Bank of England delays cutting interest rates.
GBP/USD key events today
- Final US GDP q/q
- US unemployment claims
- Fed President Powell is speaking
GBP/USD Technical Forecast: Solid bearish momentum
On the technical side, the GBP/USD price is trading in a tight, bullish channel with clear support and resistance lines. The price recently fell to channel support after failing to sustain a move above the key 1.3400 level.
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The decline stalled at the support line, which coincides with the 30-SMA. Therefore, it could bounce higher to make a new high above 1.3400. However, if the bears are strong enough to break below the support zone, the price could return to the 1.3200 support level.
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