- GBP/USD rebounds toward 1.3500 to start the new week.
- The technical outlook suggests that the bearish bias remains intact in the near term.
- Markets will pay close attention to comments from Fed officials.
After touching its highest level since early July above 1.3720 last Wednesday, GBP/USD made a sharp U-turn and suffered large losses in the second half of the week to close in negative territory. The pair holds its ground early Monday and clings to small gains at around 1.3500.
The Federal Reserve’s (Fed) cautious tone on further policy easing supported the US Dollar (USD), while the Bank of England’s (BoE) expected decision to maintain the status quo failed to help Pound Sterling find demand, causing GBP/USD to remain under bearish pressure.
In assessment of the market reaction to the BoE, “regarding future decisions, the policymakers did not reveal their hand, leading to no significant changes to interest rate expectations. In short, the decision was not a major game changer for the Pound,” Commerzbank analysts said.
Later in the day, investors will pay close attention to comments from Fed officials. The CME FedWatch Tool shows that markets widely see the Fed opting for two more rate cuts in the remaining two policy meetings this year. Hence, a confirmation of such policy steps is unlikely to trigger a significant market reaction. In case policymakers hint that they might reassess the rate outlook if inflation data start reflecting the impact of tariffs, or if the labor market shows signs of recovery, the USD could outperform its rivals and cause GBP/USD to turn south.
On Tuesday, preliminary September Services and Manufacturing Purchasing Managers’ Index (PMI) data from the UK and the US could offer key insights into the growth outlook of respective economies.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart remains below 40 after rebounding from oversold levels, suggesting that the bearish bias remains intact and GBP/USD’s latest recovery is a technical correction rather than a reversal. Additionally, the pair remains below the 100-period and the 200-period Simple Moving Averages (SMAs).
On the downside, 1.3470 (Fibonacci 38.2% retracement of the latest uptrend), aligns as the first support level before 1.3410-1.3400 (Fibonacci 50% retracement, round level). Looking north, resistance could be seen at 1.3510 (200-period SMA), 1.3530 (100-period SMA) and 1.3550 (Fibonacci 23.6% retracement).
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