GBP/USD Trading Updates

GBP/USD is seeing a slight decrease after a small uptick the previous day, hovering around 1.3240 during early Monday trading in Asia. The currency pair faces downward pressure as the US Dollar (USD) gains strength in anticipation of the upcoming US ISM Services Purchasing Managers Index release.

On the other hand, market participants have lowered their expectations for a Federal Reserve (Fed) interest rate hike due to some disappointing US employment figures. Currently, financial markets estimate a roughly 77.9% chance that the Fed will maintain current benchmark rates at its October policy meeting, an increase from 74% before the jobs report was released.

This change in market sentiment stems from surprisingly weak labor market data, as US Nonfarm Payrolls (NFP) only rose by 29,000 in September, falling short of the expected 90,000 and down from August’s revised gain of 133,000. Additionally, the unemployment rate rose to 4.2%, even though the labor force participation rate did see a slight uptick to 61.8%.

Looking at the UK, investors are factoring in about 30 basis points of expected rate hikes from the Bank of England (BoE) by the year’s end, along with around 90 basis points of total tightening projected through 2027. BoE officials, including Governor Andrew Bailey, have shown a growing readiness to increase rates in response to inflation risks driven by high energy prices.

UK Growth Outlook Upgraded

Analysts at MUFG note an improvement in the UK’s growth prospects, indicating that BoE staff have revised their expectations for the current quarter upward. Accordingly, they report that their growth forecast for Q3 has been increased to 0.4%, up from a previous estimate of 0.1% made in July. This suggests that sturdy domestic activity might bolster the Pound, even as it remains close to yearly lows against the Dollar.

Technical Analysis on GBP/USD

From a daily chart perspective, GBP/USD is trading around 1.3240, maintaining a bearish near-term outlook as it remains below both the nine-period Exponential Moving Averages (EMAs). The location beneath these key averages implies that any rallies may be limited. The 14-day Relative Strength Index (RSI), around 35, hints at ongoing downside pressure rather than a clear oversold situation.

On the upside, immediate resistance is found near the nine-period EMA at approximately 1.3259, with a more significant barrier at the 50-period EMA around 1.3399, further reinforcing the broader bearish trend. Without evident technical support from the indicators, further declines may have traders looking at previous lows for stability. A daily close above 1.3259, however, would indicate a potential easing of selling pressure.

Expectations for the Fed and Support for the Dollar

Fed’s Logan delivered a speech rated 9.2/10 on the FXS Speechtracker, a hawkish surprise compared to the historical average of 8.1/10. She emphasized that policy is still not overly restrictive and should be “modestly tight.” Although she mentioned that higher yields could indicate rising term premiums and lessen the need for extra tightening, her focus on advocating for at least 50 basis points more in rate hikes—and reversing reductions made last fall—reinforces a narrative of sustained higher rates. Overall, the combination of robust economic growth, a balanced labor market, and a strong commitment to restoring price stability suggests increased potential for the Dollar as markets brace for more assertive Fed actions.