GBP/USD Outlook: Dollar Soars To 5-Week High Against Pound

The GBP/USD outlook remains bearish, with the dollar at a five-week high against the pound. This trend is due to an increasing policy divergence between the Federal Reserve and other major central banks. Notably, the Bank of England held rates on Thursday but signaled looming rate cuts. At the same time, the Swiss Nation Bank cut rates for a second time.

The dollar was strong on Friday as it became more apparent that the Fed had assumed a more hawkish stance than most other major central banks. Notably, the Swiss National Bank cut rates for the second time. Meanwhile, although the Bank of England held rates, policymakers said their decision not to lower rates was finely balanced.

On the other hand, the Fed has only projected one rate cut for 2024, noting that the economy remains strong. Policymakers have remained cautious despite softer inflation.

On Thursday, the Bank of England held rates at 5.25% after inflation data the previous day revealed a decline to 2%. However, policymakers are worried about underlying inflation, which remains strong. As a result, Governor Andrew Bailey said it was too soon to cut rates.

Still, economists expect the first rate cut in August, while market participants expect one in September or November. All these timings would be before the Fed’s December cut. Therefore, most major central banks will have cut rates well before the US central bank, boosting the dollar.

 

GBP/USD key events today

  • US flash manufacturing PMI
  • US flash services PMI

 

GBP/USD technical outlook: New low confirms a bearish trend

(Click on image to enlarge)

GBP/USD technical outlook

GBP/USD 4-hour chart

On the technical side, the GBP/USD price has fallen further to a new low below the 1.2700 key level. This has strengthened the bearish bias because the price now sits far below the 30-SMA. At the same time, the RSI is near the oversold region, showing solid bearish momentum. 

Therefore, the decline will likely continue to the next barrier at 1.2600. Here, the price might pause for a pullback before bears seek lower lows. The bearish trend will continue if the price continues, making lower lows and highs.

 


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