GBP/USD Daily Forecast – Sterling Struggles to Gain Despite US Rate Cut Expectations Weighing on the Dollar

The Federal Reserve is expected to respond to the escalation in Coronavirus fears this week with a rate cut, possibly as soon as April.

The CME FedWatch Tool, which tracks Fed Fund Futures prices to calculate market odds of policy adjustments, shows a striking increase in expectations for a rate cut. At the start of the week, the data showed probabilities leaning towards a rate cut in June, the latest figures show an 80% chance of policy easing in April, up from a probability of 30% last week.

In a correlated manner, the trade-weighted US dollar index (DXY) has eased lower after posting a nearly three-year high last week. The index was last seen down a third of a percent for the day and trading nearly 1% lower for the week thus far.

Fed member Kashkari will be speaking later today and may shed some light on how the Fed views the Coronavirus outbreak and if it plans to implement monetary easing to support the economy from negative impacts.

In addition to Kashkari’s speech, several US data releases stand to bring volatility to the FX Markets during the North American session including US GDP, durable goods orders, and home sales.

Technical Analysis

Shortly after the European open, the British pound is seen as the only major currency unable to gain against the dollar. The price action emphasizes Sterling’s weakness and a bearish bias remains intact for the currency pair.

GBP/USD has mostly been contained within a range in February and is quickly approaching range support. A downside break is likely to accompany increased bearish momentum. On the other hand, if bulls step in, the pair could continue trading within the broader range.

For the session ahead, near-term resistance is seen close to 1.2900 while support is seen at 1.2850 which is a level that held the exchange rate higher last week.

Bottom Line

• GBP/USD is under pressure despite a notable decline in the dollar in the early day.
• Major range support is found nearby, the reaction from it will tend to set the near-term tone for the pair.