Bearish View
- Sell the GBP/USD pair and set a take-profit at 1.2600.
- Add a stop-loss at 1.2800.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 1.2715 and a take-profit at 1.2800.
- Add a stop-loss at 1.2600.
The GBP/USD exchange rate remained under intense pressure, falling to its lowest level since August 8. It has dropped in the last three consecutive days, settling at the psychological level at 1.2700, which was 5.4% below its highest level this year.
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US Inflation and Its Impact on The Fed
The GBP/USD pair remained under pressure after data showed that the US inflation rose in October. The headline Consumer Price Index (CPI) remained at 0.2% on a month-on-month basis, translating to a 2.6% year-on-year increase. This increase was in line with what most analysts were expecting.
Core inflation, which excludes the volatile food and energy prices, remained unchanged at 3.3% and 0.3% on a YoY and MoM basis, respectively,
These numbers mean that inflation is not falling as was quickly expected. Worse, some of Trump’s policies like tariffs and deportations could lead to higher prices for longer.
Therefore, the ten-year yield jumped to 4.45%, while the 30-year soared to 4.63%, a sign that the market expects the Fed to go slow on interest rate cuts. It could do that by skipping another cut in its December meeting as it waits for more data.
The next important data to watch will be the US producer price index, which is expected to come in at 2.9. Jerome Powell, the Federal Reserve governor, will also deliver his first statement since the bank decided to cut interest rates by 0.25%.
The UK will then publish the latest GDP numbers on Friday. Economists expect the data to show that the economy expanded by 0.2% in the third quarter after growing by 0.5% in the previous month. The UK will also release the manufacturing and industrial production data.
GBP/USD Technical Analysis
The GBP/USD exchange rate has been in a strong downward trend as the US dollar index rally continued. It dropped to the psychological level of 1.2700, its lowest level since August 8.
The pair has also retested the 23.6% Fibonacci Retracement level and moved below the ascending trendline that connects the lowest swing since April.
It has also dropped below the 50-day and 200-day Exponential Moving Averages (EMA), while the MACD indicator has remained below zero. The Relative Strength Index (RSI) has also moved downwards. Therefore, the path of the least resistance for the pair is bearish, with the next target being at 1.2500.
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