GBP/USD Daily Forecast – Sterling Holds Steady Near 4-Month Low

A nearly 1% drop in GBP/USD last week may not appear all that significant but it happened during a week where the dollar fell against most of its major counterparts as expectations grew for monetary policy easing in the United States.

The Fed Fund Futures markets show market expectations for a series of rate cuts. The latest data presented by the CME FedWatch tool indicates a 50 basis point cut is fully priced in for the March meeting. In addition to that, the markets are pricing in a 45% chance of another 50 basis points in cuts by the June meeting.

Fed Chair Powell released a statement that said policymakers will act as needed, all but confirming that a rate cut is coming. The question at this stage is whether the Fed will ease policy as much as the markets are expecting.

Rate cut expectations for the UK are much more moderate. The markets are currently pricing in a quarter basis point cut later this month and another one by the end of the year.

Sterling traders will be keeping a close eye on their news wires as official trade negotiations have begun with the EU. PM Johnson aims to have a similar agreement in place as Canada.

Technical Analysis

GBP/USD was under pressure in early European trading after hitting resistance at 1.2850 but the downside momentum appears to have subsided.

The 1.2850 level is considered important resistance for the pair, and the decline below it appears to be signalling a technical breakdown from a prior range. As a result, the pair might start to see an acceleration in downside momentum.

Sterling bulls will want to see a rally above 1.2850 to negate the recent downside break.

Support for the session ahead is seen at 1.2750 which seems to have held the pair higher since Friday, on a 4-hour close basis.

Bottom Line

• GBP/USD volatility has declined as investors await news on how trade talks are progressing.
• The currency pair broke below a notable level at 1.2850 and is at risk of further losses in the absence of a recovery back above the level.