GBP/USD Price Forecast: Plummets to three-month low amid fiscal concerns, ahead of Fed
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UPGRADE- GBP/USD remains under heavy selling pressure amid a combination of factors.
- Growing Concerns about the UK’s fiscal situation continue to weigh on the GBP.
- Renewed USD buying contributes to the fall ahead of the FOMC policy decision.
The GBP/USD pair extends its downfall for the second consecutive day – also marking the ninth day of a negative move in the previous ten – and drops to a nearly three-month low during the first half of the European session on Wednesday. The British Pound (GBP) continues with its relative underperformance in the wake of growing concerns about the UK's fiscal situation. In fact, reports suggest that the UK Office for Budget Responsibility (OBR) is expected to lower productivity forecasts by about 0.3%, which could widen the fiscal gap by over £20 billion. This comes ahead of Finance Minister Rachel Reeves' Autumn budget on November 26 and turns out to be a key factor behind the GBP's underperformance amid rising bets for more rate cuts by the Bank of England (BoE).
Traders now see a roughly 68% chance that the UK central bank will cut interest rates by 25-basis-points (bps) in December, as softer inflation and fiscal headwinds provide a greater scope to ease policy. The expectations were reaffirmed after the British Retail Consortium (BRC) reported on Tuesday that food prices fell 0.4% month-on-month in October, marking the biggest drop since December 2020. Adding to this, overall shop prices declined for the first time since March and were 1.0% higher than a year earlier, easing from a 1.4% rise in September and representing the first slowdown in the annual pace of price increases since June. This, along with a goodish pickup in the US Dollar (USD) demand, turns out to be another factor that contributes to the GBP/USD pair's decline.
A strong intraday USD move up lacks any fundamental catalyst and could be attributed to some repositioning trade ahead of the highly-anticipated FOMC policy decision. The US Federal Reserve (Fed) is expected to cut interest rates by 25 basis points (bps) at the end of a two-day meeting later today. Moreover, traders have nearly fully priced in that the US central bank will lower borrowing costs again in December. Hence, the accompanying monetary policy statement and Fed Chair Jerome Powell's comments during the post-meeting press conference will be scrutinized for cues about the future rate-cut path. This, in turn, will drive the USD and determine the near-term trajectory for the GBP/USD pair. Nevertheless, the aforementioned fundamental backdrop favors bearish traders.
GBP/USD daily chart
Technical Outlook
From a technical perspective, the overnight close below the 1.3300 round figure was seen as a key trigger for the GBP/USD bears. Moreover, oscillators on the daily chart are holding deep in negative territory and validate the near-term negative outlook. Hence, a subsequent fall towards retesting the August monthly swing low, around the 1.3140 region, looks like a distinct possibility. A convincing break below the said area will mark a fresh breakdown and pave the way for deeper losses.
On the flip side, any attempted recovery beyond the 1.3245-1.3250 region is more likely to attract fresh sellers and remain capped near the 1.3300 mark. A sustained move beyond might trigger a short-covering rally and lift the GBP/USD pair to the 1.3360-1.3365 area en route the 1.3400 round figure and the next relevant hurdle near mid-1.3400s.
- GBP/USD remains under heavy selling pressure amid a combination of factors.
- Growing Concerns about the UK’s fiscal situation continue to weigh on the GBP.
- Renewed USD buying contributes to the fall ahead of the FOMC policy decision.
The GBP/USD pair extends its downfall for the second consecutive day – also marking the ninth day of a negative move in the previous ten – and drops to a nearly three-month low during the first half of the European session on Wednesday. The British Pound (GBP) continues with its relative underperformance in the wake of growing concerns about the UK's fiscal situation. In fact, reports suggest that the UK Office for Budget Responsibility (OBR) is expected to lower productivity forecasts by about 0.3%, which could widen the fiscal gap by over £20 billion. This comes ahead of Finance Minister Rachel Reeves' Autumn budget on November 26 and turns out to be a key factor behind the GBP's underperformance amid rising bets for more rate cuts by the Bank of England (BoE).
Traders now see a roughly 68% chance that the UK central bank will cut interest rates by 25-basis-points (bps) in December, as softer inflation and fiscal headwinds provide a greater scope to ease policy. The expectations were reaffirmed after the British Retail Consortium (BRC) reported on Tuesday that food prices fell 0.4% month-on-month in October, marking the biggest drop since December 2020. Adding to this, overall shop prices declined for the first time since March and were 1.0% higher than a year earlier, easing from a 1.4% rise in September and representing the first slowdown in the annual pace of price increases since June. This, along with a goodish pickup in the US Dollar (USD) demand, turns out to be another factor that contributes to the GBP/USD pair's decline.
A strong intraday USD move up lacks any fundamental catalyst and could be attributed to some repositioning trade ahead of the highly-anticipated FOMC policy decision. The US Federal Reserve (Fed) is expected to cut interest rates by 25 basis points (bps) at the end of a two-day meeting later today. Moreover, traders have nearly fully priced in that the US central bank will lower borrowing costs again in December. Hence, the accompanying monetary policy statement and Fed Chair Jerome Powell's comments during the post-meeting press conference will be scrutinized for cues about the future rate-cut path. This, in turn, will drive the USD and determine the near-term trajectory for the GBP/USD pair. Nevertheless, the aforementioned fundamental backdrop favors bearish traders.
GBP/USD daily chart
Technical Outlook
From a technical perspective, the overnight close below the 1.3300 round figure was seen as a key trigger for the GBP/USD bears. Moreover, oscillators on the daily chart are holding deep in negative territory and validate the near-term negative outlook. Hence, a subsequent fall towards retesting the August monthly swing low, around the 1.3140 region, looks like a distinct possibility. A convincing break below the said area will mark a fresh breakdown and pave the way for deeper losses.
On the flip side, any attempted recovery beyond the 1.3245-1.3250 region is more likely to attract fresh sellers and remain capped near the 1.3300 mark. A sustained move beyond might trigger a short-covering rally and lift the GBP/USD pair to the 1.3360-1.3365 area en route the 1.3400 round figure and the next relevant hurdle near mid-1.3400s.
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