GBP/USD Analysis: Gains Halted for Now – 18 September 2024

-- As expected, the GBP/USD has maintained its recent gains pending the reaction to the US and UK monetary policy decisions this week.
-- Ahead of these crucial events, the Pound is hovering near the 1.3200 resistance level. ;

The Federal Reserve is expected to cut the US federal funds rate, which is currently at a 23-year high of 5.25% - 5.50%, during its meeting in September 2024. This will be the first interest rate cut since March 2020. While the size of the cut remains uncertain, there is growing discussion about a possible cut of 50 basis points, although the Fed usually implements cuts of 25 basis points. According to the results of the economic calendar, the annual headline inflation rate in the United States slowed for the fifth straight month to 2.5% in August, the lowest since February 2021, while the annual core inflation rate was at its lowest in more than three years at 3.2%. The annual core personal spending rate, the Federal Reserve’s preferred measure of core inflation, remained at 2.6% for the third straight month in July. ;

What is the expected price of the British pound against the US dollar in the coming days? ;

In this regard, the currency strategy note from HSBC says that the rapid rise in the British pound against the US dollar risks stalling. According to reliable trading platforms the British pound against the US dollar (GBP/USD) rose by three-quarters of a percent on Monday and is now holding gains, trading at 1.3210, 50 points below its 2025 high. ;

The gains in the GBP/USD pair are due to the weakness of the US dollar as financial markets are raising their expectations for a 50-basis point cut in US interest rates by the Federal Reserve on Wednesday. However, the decision to leave interest rates in Britain unchanged at the Bank of England on Thursday is also said to be helping. ;

Paul Spergel, a markets analyst at Reuters, says, "For now, growing expectations of a Fed rate cut are having a broad negative impact on the US dollar. Specifically, on GBP/USD as the Bank of England is expected to keep rates on hold when it issues its rate decision the day after the FOMC meeting." ;

The question now is: could the pound sterling rise to its 2024 peak against the US dollar at 1.3270, and perhaps even higher? ;

In this regard, a new research note says that the GBP/USD pair is at risk of stagnation, meaning that those looking for the best price for the dollar should consider securing some of their exposure around today’s levels. Overall, financial markets now see a 75% chance of a 50-basis point rate cut by the Federal Reserve on Wednesday, compared to around 30% a week ago. The increased odds of a 50-basis point rate cut follow two media reports on Thursday, in which analysts pointed to the close links between the author of a Wall Street Journal article and the Fed. ;

Given the lack of evidence to support the report, there is a real risk of disappointment. If the US interest rates are cut by 25 basis points, the US dollar could recover, and the GBP/USD pair will fall sharply. Financial markets show that there are about 260 basis points of cuts that the market is pricing in by the end of 2025, while the latest IMM report shows that the total net short position in the US dollar has reached its largest level since August 2023. Obviously, this means that markets are already betting heavily against the US dollar. ;

Meanwhile, the next event that will affect the sterling dollar. The Bank of England decides in a day, and financial markets see little chance of a cut with a clear majority of the Monetary Policy Committee voting to keep rates unchanged. Furthermore, forex analysts say that the pound could come under pressure if the vote is more hawkish than expected. Ahead of the bank’s decision, UK CPI data will be released on Wednesday, which Wardle believes could change the bank’s thinking. ;

Technical forecasts for the GPB/USD pair today: ;

With GBP/USD positioning stretched in opposite directions and the market close to fully pricing in a 50bp Fed cut and no action from the BoE, the momentum required to break the 1.3275 barrier in GBP/USD is massive. ;

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Original Source DailyForex.com provides daily fundamental and technical analysis and signals for those looking to trade based on trends in the currency markets.