- GBP/USD consolidated a modest decline spurred by the UK CPI on Wednesday, hitting its lowest level in more than two months.
- Bets that the BoE will cut interest rates in November are weighing on the pound and major currencies as the dollar strengthens.
- Expectations that the Fed's aggressive easing policy will be eased favor USD bulls ahead of US data.
The GBP/USD pair remained below the psychological level of 1.3000 during Thursday's Asian trading and is currently near its lowest level since August 20, reached a day earlier. Meanwhile, the fundamental backdrop appears to be tilted firmly in favor of bearish traders, suggesting that the path of least resistance for spot prices is to the downside.
The UK's annual consumer price index (CPI) slowed to 1.7% last month from 2.2% in August, the lowest reading since April 2021, according to data released on Wednesday. This data raised expectations for interest rate cuts by the Bank of England (BoE) announced in November, continuing to push the British pound (GBP) lower. Separately, the recent rise in the US dollar (USD) to its highest levels since early August confirms the negative outlook for the GBP/USD pair in the short term.
Investors now appear confident that the Federal Reserve will continue to cut interest rates modestly over the next year. This has kept the benchmark 10-year US Treasury yield above the 4% threshold, continuing to support the US dollar. Separately, persistent geopolitical risks stemming from the ongoing conflict in the Middle East benefit the greenback's relative safe-haven status, supporting prospects for further weakness in the GBP/USD pair. .
From a technical perspective, the overnight breakdown below the week-ago trading range and acceptance below the psychological mark of 1.3000 lends credence to the bearish setup. Therefore, a weak follow-through towards the 100-day simple moving average (SMA) support around the 1.2955 area looks like a distinct possibility on the way to the 1.2900 mark. Traders are now looking for US macro announcements to provide some stimulus later in early North American trading.
Thursday's U.S. economic report includes the monthly retail sales report, the usual weekly new jobless claims, the Philadelphia Fed's manufacturing index and industrial production data. This, combined with US bond yields and geopolitical developments, will drive demand for the US dollar and create short-term trading opportunities around the GBP/USD pair.
