GBP/USD Daily Forecast – Sterling Struggles to Hold Above 1.3000 as Rate Cut Talks Continue

Several members of Bank of England’s Monetary Policy Committee have discussed the need for easier monetary policy which has been weighing on Sterling.

MPC member Saunders in a speech today said that he felt a rate cut was necessary to provide support to the economy, labor market, and reduce the chance of undershooting the inflation target.

Saunders was one of the two members that surprisingly voted to cut rates in November. Since then, several more members have jumped on board the view, including Bank of England Governor Carney.

The policy stance is creating a divergence for GBP/USD after the Federal Reserve communicated intentions to remain on hold at their latest meeting, after having cut three times in 2019.

Technical Analysis

The turn higher in GBP/USD on Tuesday came from a significant area. While the 1.3000 price point is important for the exchange rate, it was a range between roughly 1.2960 and 1.2990 that held the pair lower on several attempts in the fourth quarter. The prior resistance range is now seen as support.

While trading in this area, there might be some uncertainty among technical traders on a directional near-term bias, despite the notable post-election downside pressure. However, a sustained downside break could see an acceleration in GBP/USD selling.

A declining trend channel is in play with the upper bound of it triggering a turn lower earlier today. A break higher from the trend channel would signal a reversal and that the support area is holding.

The US Dollar index (DXY) has fallen into a range since Friday’s NFP report, also creating some uncertainty as to the dollar’s near-term direction. DXY had been rallying with momentum after breaking higher from a two-week range last week.

On a daily chart, DXY has printed candles of indecision and this could be an area where the index tries to pullback. However, traders looking to fade dollar strength will likely look to other pairs besides GBP/USD considering the discussing of monetary policy easing in the UK.

Bottom Line

• GBP/USD is seeing renewed downside pressure after more talks of cutting rates
• An Important support zone is in play for the pair between 1.2960 and 1.2990.