On Thursday, during European trading hours, the British pound (GBP) dropped to approximately 1.3185 against the US dollar (USD). The GBP/USD pair is facing downward pressure as the US dollar recovers from earlier losses sparked by remarks from President Trump and China’s Ministry of Commerce following his discussions with President Xi Jinping.
At present, the US Dollar Index (DXY), which measures the dollar’s value against six other major currencies, was flat at roughly 99.20.
Following his trade conversations with Xi, President Trump remarked that the meeting was very positive, even declaring it a “12” on a scale of 1 to 10. He stated that tariffs on China would be reduced from 57% to 47%, there would be no restrictions on the export of rare earth materials to the US, and that immediate purchases of soybeans by Beijing would commence.
In a responsive move, China’s Ministry of Commerce announced a suspension of export control measures initially imposed on October 9 for a year, simultaneously expanding agricultural trade with the US.
This improvement in US-China trade relations is seen as beneficial for the US dollar.
A daily digest that moves the markets: Investors eagerly await next week’s BoE monetary policy
- The GBP had a temporary consolidation against the US dollar on Thursday following a sharp drop to nearly a six-month low near 1.3140 the day before. The pound fell significantly on Wednesday after the Federal Reserve lowered interest rates by 25 basis points (bps) to a range of 3.75% to 4.00%.
- This was the Fed’s second interest rate cut this year. Analysts had anticipated a dovish stance following the latest U.S. consumer price index (CPI) data, suggesting that tariff-induced inflation effects might not last. Additionally, ongoing federal shutdowns and weakening labor market conditions primarily influenced the Fed’s decision.
- Chairman Powell labeled the rate cut as an act of “risk management,” given the low levels of job creation.
- Even though lower rates typically don’t bode well for the dollar, it strengthened after Powell suggested during the December policy meeting that he was against further monetary easing. He stated, “A further rate cut in December is far from certain since inflation is still somewhat above target.”
- A shift in investor outlook occurred after Powell indicated he wouldn’t support another rate cut in December. The CME FedWatch tool shows that traders now believe there’s a 70% chance of rates remaining unchanged in December, a significant increase from just 9.1% earlier in the week.
- In the UK, the key focus for the British currency will be on expectations surrounding next week’s Bank of England (BoE) monetary policy. Analysts at Goldman Sachs are forecasting a 25bps rate cut to 3.75% on November 6, influenced by a softening labor market.
- In contrast, economists surveyed by Reuters do not expect any further BoE rate cuts for the remainder of the year, predicting that monetary easing may return in the first quarter of 2026.
Technical analysis: GBP struggles to break above 1.3200
On Thursday, the British pound fell to approximately 1.3185 against the US dollar. The GBP/USD pair has been facing difficulties in gaining momentum after reaching a nearly six-month low around 1.3140 on Wednesday. The outlook appears bearish, with trading currently below the 200-day exponential moving average (EMA) of about 1.3295.
The 14-day Relative Strength Index (RSI) has dipped below 40.00, signaling a new wave of bearish momentum.
Looking ahead, the psychological threshold of 1.3000 is expected to act as a key support level, while resistance is seen near the October 28 high of around 1.3370.
