GBP/USD Continues Downward Trend Amid U.S. Economic Uncertainty

GBP/USD has marked its fifth consecutive day of declines, trading around 1.3340 during Asian hours on Thursday. The pair slipped as the U.S. dollar found strength, driven by increased risk aversion. Traders are approaching the upcoming U.S. inflation data release on Friday with caution, especially amidst the ongoing government shutdown that’s restricting access to critical data.

Meanwhile, the dollar is gaining traction, partly due to optimistic sentiments surrounding U.S.-China trade talks. President Trump indicated on Wednesday that he intends to finalize several agreements during his upcoming meeting with Chinese President Xi Jinping in South Korea next week. Discussions are anticipated to include topics like U.S. soybean exports, nuclear limitations, and China’s purchase of Russian oil.

Market expectations show a nearly 97% likelihood of a rate cut from the Federal Reserve in October and a 96% chance of another cut in December, as per the CME FedWatch tool. A Reuters survey found that 115 out of 117 economists foresee a 25 basis point reduction to a range of 3.75-4.00% during the Fed’s monetary policy announcement scheduled for October 29. For 2020, 83 of these economists predict two rate cuts, while 32 expect just one.

The decline in the GBP/USD pair can also be attributed to significant selling pressure on the British pound, which followed the recent release of the United Kingdom’s Consumer Price Index (CPI) data for September.

In September, the UK CPI increased by 3.8% year-on-year, which was below expectations that had anticipated a 4.0% rise. This figure remains above the Bank of England’s inflation target of 2%. Moreover, core CPI, which excludes volatile food and energy prices, rose 3.5% year-on-year, down from 3.6% in August, but also fell short of the 3.7% forecast.