The GBP/USD currency pair has recently experienced a downturn, retreating from its highest point since March 2022 and falling below the 1.3400 level. The slide, observed during the Asian session on Friday, comes as a result of a modest strengthening of the US dollar, although the decline lacks significant momentum.
Following a peak of around 1.3435 the previous day, GBP/USD has seen selling pressure, particularly as traders reposition themselves ahead of key US inflation data, namely the Personal Consumption Expenditure (PCE) Price Index. Despite some recovery in the dollar, thanks to this repositioning, the overall outlook remains guarded, particularly with increasing speculation surrounding the Federal Reserve’s potential interest rate policy.
Despite attempts by some Federal Reserve officials to temper expectations regarding significant rate cuts, market sentiment has shifted toward anticipating a substantial easing in November. This expectation continues to overshadow recently released positive US economic data, thereby curbing any significant bullish movement for the dollar in the near term. This environment is supportive for GBP/USD , as persistent dollar strength appears limited.
Moreover, a positive global risk sentiment is fueled by hopes that interest rate reductions will invigorate economic activity worldwide. Enhanced appetite for riskier assets has also been bolstered by various stimulus actions from the People’s Bank of China, including recent reductions in its seven-day repo rate and adjustments to the Reserve Requirement Ratio (RRR).
Expectations regarding the pace of the Bank of England’s rate adjustments suggest a more measured approach compared to the United States, offering additional support for the British pound. Consequently, while caution is warranted, the current situation indicates that any significant short-selling for GBP/USD would require more definitive signs of a trend reversal, as the pair is positioned to potentially conclude the week positively.
