GBP to USD Forecast: How UK Pound Reacts to BoE Outlook and US Jobless Claims News

Highlights

• GBP/USD declined by 0.45%, settling at $1.25075 after a volatile trading session on Wednesday.
• GBP/USD’s future uncertain amid UK economic concerns.
• Amid positive US indicators, the Dollar stands strong, with eyes on possible Fed rate hikes.

The Wednesday Overview

On Wednesday, the GBP to USD pair declined by 0.45%. Following a 0.45% loss on Tuesday, GBP/USD ended the day at $1.25075. A mixed session saw the pair rise to a high of $1.25879 before sliding to a low of $1.24814.

Bank of England Outlook to Resonate

The GBP/USD faces challenges due to mixed sentiment toward BoE monetary policy goals. Market bets on an end to the BoE monetary policy tightening cycle leave the GBP/USD under pressure.

The BoE anticipates a sharp fall in inflation. This removes the immediate need for further rate hikes. UK Chancellor Jeremy Hunt recently shared similar expectations, which would aid the ailing UK economy.

The all-important UK services PMI fell from 51.5 to 49.5 in August, raising the threat of a UK recession. The service sector accounts for more than 70% of the UK economy. A contraction across the services sector has implications for the broader economy.

However, the UK economy may not have fully felt the effects of BoE moves to tame inflation. Uncertainty surrounding the UK economic outlook could further pressure the GBP/USD over the near term.

US Jobless Claims and The Fed in Focus

Today, the focus will be on the US labor market. After higher-than-expected ISM Non-Manufacturing Employment figures for August, another fall in jobless claims would fuel hawkish Fed bets. Economists forecast initial jobless claims to rise from 228k to 234k.

A tighter labor market would accelerate wage growth, fueling consumption and demand-driven inflation. Elevated US wage growth remains a concern for the Fed.

While the labor market numbers are influential, Fed speeches also warrant attention. FOMC members Bowman, Harker, and Williams are on the calendar to speak today. We expect Fed Vice Chair Williams to have more impact.

Short-Term Forecast

Upbeat US economic indicators signal a shift in economic divergence in favor of the Dollar. Monetary policy divergence is also in play as investors consider the prospects of another Fed rate hike.

GBP to USD Price Action

Daily Chart

The GBP/USD pair stayed below the trend line and the 50-day EMA but above the 200-day EMA. Following the Wednesday pullback, buyer appetite at the 200-day EMA limited the downside. However, investor sentiment toward the UK economy leaves the GBP/USD at risk of a more marked pullback.

Steady US labor market numbers and hawkish Fed commentary would support a fall through the 200-day EMA. A break below the 200-day EMA would bring the $1.24410 support level into play.

The 14-Daily RSI reading of 34.99 indicates the GBP/USD has room to fall to sub-$1.2450 before hitting oversold territory.

4-Hourly Chart

The GBP/USD stays below the 200-day and 50-day EMAs, reaffirming bearish price near-term signals. A return to $1.2550 would give the bulls a run at the 50-day EMA. However, US economic indicators and Fed speakers must ease hawkish bets to support a GBP/USD breakout.

The GBP to USD bears would need Fed speakers and US labor market numbers to bring sub-$1.2450 into view.

The 32.18 14-4-Hourly RSI indicates the GBP/USD has room to test the $1.2441 support level before hitting oversold territory.