The GBP/USD pair is experiencing follow-through buying during Friday’s Asian session, bouncing back from a two-month low around the 1.2975-1.2970 region. Currently trading around 1.3020-1.3025, the pair is up 0.10% for the day, aided by a modest pullback in the U.S. Dollar (USD). However, any significant upward movement remains uncertain.
The U.S. Dollar Index (DXY), which measures the dollar against a basket of currencies, is retreating from its highest level since early August, as traders take profits following a strong rally. Nonetheless, expectations that the Federal Reserve (Fed) will implement modest rate cuts over the next year are likely to limit USD losses, thereby capping potential gains for GBP/USD.
Compounding this, a surprising decline in the UK Consumer Price Index (CPI) to its lowest level since April 2021—below the Bank of England‘s 2% target—sets the stage for further interest rate cuts. Markets now price in over a 90% chance of a 25 basis point cut at the Bank of England’s upcoming meeting in early November, with additional cuts anticipated in December. This situation is likely to deter aggressive bullish positions in the British Pound (GBP).
Traders are now awaiting UK Retail Sales data for additional direction, as well as U.S. housing market data—Building Permits and Housing Starts—later in the North American session. The upcoming speech by Fed Governor Christopher Waller will also impact the USD and create short-term trading opportunities. As it stands, the GBP/USD pair seems poised to register losses for the third consecutive week, necessitating strong follow-through buying to confirm any reversal from recent declines.
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