The GBP/USD pair is facing difficulties in capitalizing on Friday’s modest gains, attracting fresh sellers at the start of the new week. Spot prices are currently trading in the mid-1.3000s, remaining close to a one-month low reached last Thursday, primarily due to a strengthening US Dollar (USD).
The USD Index (DXY), which measures the Greenback against a basket of currencies, remains robust near its highest level since mid-August. Traders have largely discounted the likelihood of further significant interest rate cuts by the Federal Reserve (Fed) in November. Coupled with persistent geopolitical risks arising from ongoing conflicts in the Middle East, these factors have strengthened the safe-haven USD, exerting additional downward pressure on the GBP/USD pair.
In contrast, the British Pound (GBP) is weighed down by growing expectations that the Bank of England (BoE) may accelerate its rate-cutting cycle. Markets are currently pricing in a 90% probability that the BoE will cut rates in November. This sentiment has been fueled by recent comments from BoE Governor Andrew Bailey, who indicated that the central bank could become more aggressive in cutting rates if further positive news on inflation emerges.
Meanwhile, the initial market reaction to Friday’s economic releases from both the UK and the US has faded quickly, suggesting that the path of least resistance for the GBP/USD pair is downward. The UK Office for National Statistics (ONS) reported a modest economic growth of 0.2% in August, indicating a recovery after two months of stagnation in June and July, supported by better-than-expected manufacturing and industrial production figures.
From the US, the Producer Price Index (PPI) for final demand remained unchanged in September, showing a year-on-year increase of 1.8%. The core PPI, which excludes volatile food and energy prices, climbed by 0.2% month-on-month and by 2.8% year-on-year. This data suggests a favorable inflation outlook and supports expectations for additional interest rate cuts by the Fed in November. However, it may also temper aggressive USD buying, providing some support to the GBP/USD pair.
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