Given the current state of market uncertainty, the British Pound/US Dollar (GBP/USD) exchange rate is relatively stable around the 1.2400 level, with a noticeable weakening of the upward trend. The combination of the strong US dollar, possible protectionist measures from Trump, and the bleak forecast from the Bank of England puts the pair in a difficult position, in my view, and lends credence to a bearish scenario for the near to medium term. Investors should keep a careful eye on economic statistics and political comments since unanticipated moves might be caused by the continuous changes in the political and economic environment.
The possibility of more tariffs on nations that already charge US imports is, in my opinion, one of the main reasons buoying the US dollar. These kinds of moves increase the dollar’s attractiveness as a safe-haven asset, which is bad news for the British pound. Governor Andrew Bailey has hinted that more rate cuts could be required, but that the decision would be dependent on future economic data, suggesting that the Bank of England is becoming more careful with its monetary policy. Market expectations of more monetary easing are reinforced by the Bank of England’s cautious stance, which lowers the Pound. This is particularly true given the decline in economic activity and the employment market.
The markets were taken aback by the robust pay increase, even though the most recent US employment statistics showed fewer jobs added than expected. The persistence of inflationary pressures in the US is reflected in the faster-than-expected rise in hourly earnings. The US dollar gains ground versus the British pound as a result of this report, which backs the Federal Reserve’s stance of keeping interest rates higher for a longer length of time. Federal Reserve Chairman Jerome Powell has made it plain that monetary policy changes would only be considered if the labour market shows symptoms of weakening or if inflation is significantly reduced, neither of which has happened so far.
On the other hand, in the CFD forex trading, the British pound is under more pressure after the Bank of England decided to slash interest rates by 25 basis points to 4.5%, in light of poor growth projections. Even though the markets were expecting this, investors were worried when Catherine Mann, a member of the Monetary Policy Committee renowned for her often hawkish attitude, backed a bigger 50 basis point decrease. The Bank of England has shown its concern for the UK economy by taking this step, which will likely lead to further cutbacks and will be hard for the pound.
The UK’s GDP prediction of 0.75 percent, down from 1.5 percent in November, shows the economy’s vulnerability and the problems it’s still facing, in my opinion. Investors may flee the British Pound for safer havens like the US Dollar if economic growth rates continue to decelerate. Rising energy costs throughout the world are causing inflation in the United Kingdom to spike to 3.7% in the third quarter, which may put the Bank of England in an even more difficult situation and cause market volatility.
Because of these interconnected variables, I believe the trend is going against the bulls in the GBP/USD pair, and I expect this trend to continue so long as the price stays below the 50-day simple moving average. As things stand, the 1.2300 level might be tested if the downward trend continues, and any attempt to recover towards 1.2423 could encounter stiff resistance. If the underlying elements that support the US Dollar remain unchanged, there is a chance that we could see a return to the downside.
Therefore, I think the market is patiently waiting for the US Consumer Price Index data that is due soon. This data may give more hints about the monetary policy direction of the Federal Reserve. The likelihood of further falls in the GBP/USD currency pair increases if the data comes in higher than anticipated, since this might give the US Dollar more impetus. Nevertheless, a reduction in inflation might provide some relief for the pound, albeit this would have little effect until the Bank of England changes its stance on monetary policy. So, be careful and keep an eye on the global market movements if you want to trade the GBP/USD pair.