GBP/USD. Analysis and Forecast

[Ben Graham]

For the second consecutive day, GBP/USD is showing positive dynamics against the backdrop of U.S. dollar weakness, linked to rising expectations of further Fed rate cuts in October following the release of U.S. inflation data for August.

The Personal Consumption Expenditures (PCE) Price Index rose 2.7% year-over-year in August, in line with analysts' forecasts, according to data from the U.S. Bureau of Economic Analysis published on Friday. The core PCE index, excluding food and energy, stood at 2.9%, also matching expectations.

In September, the Fed cut the key rate by 25 basis points for the first time, bringing it to the 4.00%–4.25% range. According to the CME FedWatch tool, markets are currently pricing in an 88% probability of another rate cut in October, and around 65% for an additional cut in December.

As for the British pound, there are suggestions that the Bank of England will keep the rate at 4.0% until the end of the year, which supports the currency. The Bank of England is unlikely to cut rates in the near term due to persistent inflationary pressures in the UK economy.

Today, Monday, for better trading opportunities, special attention should be paid to the release of UK economic data, as well as speeches from Fed officials, including Governor Christopher Waller, Cleveland Fed President Beth Hammack, St. Louis Fed President Alberto Musalem, New York Fed President John Williams, and Atlanta Fed President Raphael Bostic. More hawkish remarks from policymakers could increase demand for the U.S. dollar and limit the growth of GBP/USD.

From a technical standpoint, the pair faces resistance at the confluence of the 50-day SMA and the 9-day EMA. A breakout above this level would bring the next resistance at the 100-day SMA, above which bulls would strengthen their positions.

However, as long as the 14-day RSI remains below the 50 level, this signals an active bearish sentiment.

The nearest support for the pair lies at the psychological level of 1.3400, below which the path opens toward the September low around 1.3323. A break of this level would reinforce bearish sentiment and pressure the pair lower toward the next round level of 1.3300.

The material has been provided by InstaForex Company - www.instaforex.com