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• GBP/USD failed to spark a rebound above 1.2700 on Wednesday.
• Markets continue to price in a double Fed cut in September.
• Investors shrugged off fears of a US downturn, but bids remain tepid.

GBP/USD tested waters on the high side on Wednesday but settled the day where it started just south of the 1.2700 handle. Markets are struggling to shrug off a broad downside shock kicked off late last week after a raft of US data came in below expectations, reigniting fears of a steep US recession looming over the horizon.

Investors have recovered their balance, but recovery remains a limited affair as Cable treads water. Meaningful economic data remains limited heading through the rest of the week, leaving investors to grapple with hopes for a 50 basis point rate cut from the Federal Reserve (Fed) in September.

Cable traders will be looking ahead to next week’s UK labor figures and an update to US Producer Price Index (PPI) inflation. UK and US Consumer Price Index (CPI) inflation is also in the barrel for next week, as well as UK Gross Domestic Product (GDP) growth and US Retail Sales.

At the current cut, rate traders are pricing in roughly two-to-one odds of a 50-basis-point rate trim from the Fed on September 18, with a further two cuts expected through the rest of 2024. According to the CME’s FedWatch Tool, rate probabilities see an 83% chance of the Fed’s benchmark fed funds rate hitting 425-450 basis points by the end of December.

GBP/USD technical outlook
 

Cable continues to churn chart paper just north of the 200-day Exponential Moving Average (EMA) at 1.2647, but odds of a bullish technical recovery are growing thinner as bidders struggle to find a foothold. GBP/USD is down nearly 3% peak-to-trough from 12-month highs set in mid-July, and long-term position buyers will be looking for a slow-moving pattern of higher lows on daily candlesticks to keep the pair buoyed.

GBP/USD daily chart
 

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