Daily Price Outlook
During the European trading session, the GBP/USD currency pair struggled to halt its downward movement, remaining under pressure around the 1.2348 level. It reached an intra-day low of 1.2312, continuing its decline.
The primary factor behind this drop is the recovery of the US Dollar, as reflected in the slight rise of the US Dollar Index (DXY), which tracks the value of the Greenback against six major currencies.
This shift helped the USD gain some strength after hitting a two-week low of 107.90 earlier in the week. Market sentiment is also being affected by uncertainty surrounding former President Trump's tariff plans, which have led to mixed reactions in the global financial landscape.
On the positive side, the GBP is performing well against its major peers, benefiting from risk-on sentiment that has favored currencies like the Pound.
However, the outlook for the GBP remains uncertain as the Bank of England (BoE) is widely expected to reduce interest rates by 25 basis points to 4.5% during its February policy meeting, which could weigh further on the currency. This combination of factors leaves the GBP/USD pair in a precarious position for the near term.
Uncertain Outlook for GBP as BoE Expected to Cut Rates Amid Economic Concerns
On the BoE front, the outlook for the Pound Sterling remains uncertain as the Bank of England (BoE) is expected to cut interest rates by 25 basis points (bps) to 4.5% in February.
This decision follows soft economic data, including weak inflation and retail sales numbers for December, as well as modest GDP growth.
Moreover, weak labor demand from the three months ending in November has prompted traders to price in a rate reduction. The BoE faces challenges with economic growth slowing down, prompting the need for such a move.
However, there are still concerns regarding rising wage growth in the UK, which could keep inflation pressures high, particularly in the service sector.
On Tuesday, the Office for National Statistics (ONS) reported that average earnings excluding bonuses increased by 5.6%, which was faster than the expected 5.5% and higher than the previous figure of 5.2%.
This wage growth could be a key factor for the BoE to consider when deciding on future rate cuts, as higher wages could continue to fuel inflation.
Looking ahead, traders and investors will be watching the upcoming preliminary S&P Global/CIPS Purchasing Managers Index (PMI) data for January, which is set to be released on Friday.
This data will provide further insight into the UK economy and could influence the BoE's decision on interest rates, as well as the performance of the Pound Sterling in the coming weeks.
Therefore, the Bank of England's expected rate cut and concerns over wage growth could weigh on the Pound, limiting its strength against the US Dollar. The uncertainty surrounding the UK's economic outlook may lead to further pressure on the GBP/USD pair.
GBP/USD – Technical Analysis
The GBP/USD pair is trading at $1.23350, down 0.08%, as it hovers near critical support levels amid a cautious market sentiment.
The pivot point at $1.23443 serves as a key reference level for traders, with the pair struggling to sustain gains above it. A sustained move below this pivot could accelerate selling pressure, with immediate support at $1.22704, followed by further downside targets at $1.22151 and $1.21609.
The presence of the 50-day EMA at $1.22459 provides additional support, suggesting a potential slowdown in bearish momentum should the price approach this level.
On the upside, resistance levels are identified at $1.24064, $1.24540, and $1.25056. A break above these resistance levels could signal a reversal in sentiment, potentially attracting fresh buying interest.
However, given the current market dynamics, selling pressure is likely to dominate unless the pair manages to hold above $1.23443.
From a technical standpoint, GBP/USD remains under short-term bearish pressure, with the recommended sell entry below $1.23434.
A move toward the take-profit target of $1.22707 remains in play, with a stop-loss positioned at $1.23902 to manage risk effectively. Traders should remain vigilant to upcoming economic releases that could influence price action and shift momentum.
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