GBP/USD is currently experiencing a decline as market participants speculate about the possibility of a rate cut by the Bank of England. There is a growing concern about global growth, which is adding to the downward pressure on the currency pair. Currently, there is a 53% chance of rate cuts in August according to market participants, with economists predicting an even higher likelihood of 80%.
From a technical standpoint, GBP/USD is approaching a key support level at 1.2850, with resistance sitting at 1.2950. The currency pair has been steadily decreasing since reaching above the 1.3000 mark. The immediate support level at 1.2850 will be crucial, and a break below this could signal further downward movement. On the flip side, if there is an upward move, resistance can be expected at 1.2950 before the psychological level of 1.3000 becomes relevant again.
The decline in GBP/USD can also be attributed to shifting sentiments in the market. As concerns about global growth in the second half of 2024 intensify, investors are adjusting their positions accordingly. The UK business optimism index, which saw a significant drop in Q3, reflects the growing unease among manufacturing companies. This decline in optimism could be a result of the expected rise in UK inflation and concerns about slower global growth in the coming quarters.
The upcoming US GDP data release is also expected to have an impact on GBP/USD. Markets are anticipating a 2% print, but some analysts, including myself, predict a slightly higher reading of 2.3-2.5%. A positive GDP reading could strengthen expectations for rate cuts by the Federal Reserve, potentially weakening the USD. On the other hand, a lower-than-expected GDP could lead to short-term appreciation of the US dollar, heightening recession fears.
The declining trend of GBP/USD is influenced by a combination of factors including speculation of a rate cut by the Bank of England, concerns about global growth, shifting market sentiments, and the upcoming US GDP data release. Technical analysis suggests that the currency pair is approaching a critical support level, with resistance levels to watch out for on the upside. It will be essential to monitor how these factors play out in the coming days to gauge the future direction of GBP/USD.