CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
☰
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
✖

GBP/USD Forecast: BoE and Fed rate cut expectations remain in focus

Article By: ,  Senior Market Analyst
February 3, 2024 2:00 PM
  • GBP/USD major risk events: Fed Powell interview, US ISM manufacturing PMI, BoE Catherine Mann speech.
  • GBP/USD trades rangebound for a seventh week
  • GBP/USD key themes: Interest rate expectations and rate cut timings

Despite several significant events last week, GBP/USD continues to trade range bound for a seventh straight week. The BoE and the Federal Reserve's interest rate decisions and US nonfarm payrolls failed to tease GBP/USD out of its trading range.

Looking ahead to the coming week, the economic calendar is relatively quiet for both the UK and the US. However, there are a few events that could inject some volatility into the pair.

Fed Powell speaks & ISM services PMI

A 60-minute interview by Jerome Powell on Sunday evening will be in focus and could set the week off with some vigor. The markets will watch for comments from the Fed chair after US non-farm payrolls smashed expectations on Friday.

After the Fed Chair firmly pushed back against the March rate cut last week and after the stronger-than-expected jobs data, there is a chance of Powell adopting a hawkish bias, which could see the market push back rate cut expectations, pulling GBP/USD lower.

At the time of writing, the CMEFedwatch is pricing in a 35% chance of a rate cut in March, down from 85% in December. The market is now pricing in a 95% chance of a May rate cut.

US ISM manufacturing PMI data will be released at the start of the week. Recent data from the US has highlighted the resilience of the US economy despite the 22-year high-interest rates. The manufacturing PMI is forecasted to rise to 52 from 50.6.

BoE's Catherine Mann

Meanwhile, Bank of England hawk Catherine Mann will speak on Thursday. Catherine Mann caught the market off guard after she voted to raise interest rates in last week's BoE meeting. With this in mind, commentary from Catherine Mann could have a hawkish tilt supporting GBP. Comments come after Bank of England chief economist Huw Pill warned that an interest rate reduction is still some way off despite signals that borrowing costs could have peaked.

The pound is finding support from views that the BoE will be one of the last major central banks to start cutting interest rates given persistent inflation: A view the BoE reinforced last week and that Catherine Mann could next week.

Since UK data shows that the economy still hasn’t fallen off a cliff, recession fears aren’t dragging the pound lower. Should recession fears become more prominent, GBP could come under pressure.

GBP/USD forecast – technical analysis

GBP/USD trades in a parallel channel dating back to mid-December, capped on the upside by 1.28 and 1.26 on the lower band.

In a breakout trade scenario, sellers could look for a break below 1.26 to expose the 200 SMA at 1.2550 and 1.25 the December low.

Buyers will look to rise above 1.28 and 1.2830, the December high, to bring 1.30 into focus.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

© City Index 2024