Pound Falls on BoE Dovish Signals; Dollar Hits Six-Week High on Strong U.S. Data

On Thursday, the British pound saw a sharp decline following dovish remarks from BoE Governor Andrew Bailey, who indicated the central bank might be 'more aggressive' in cutting interest rates, prompting investors to adjust their expectations for future UK monetary policy.

Governor Bailey suggested that the BoE could be more proactive in lowering rates if inflation continues to ease, but also warned of risks from the ongoing conflict in the Middle East, which could drive up oil prices. Investors now see a 97% chance of a quarter-point rate cut at the BoE's November meeting. However, some economists argue that wage and price pressures must ease further before consecutive rate cuts are feasible.

Meanwhile, British services firms reported slower growth in September, but prices charged increased at their lowest rate in almost four years, which the BoE is monitoring as it evaluates inflation.

On the other hand, British employers held wages steady at a two-year low. Economic data showed slower-than-expected growth in the second quarter of 2024, but positive signs emerged in household finances and business investment.

While British consumers have grown more pessimistic due to government policy changes, business confidence remains relatively high, despite concerns over the economic outlook. Retail prices have also declined, easing inflation pressures on consumers, although food prices rose due to poor harvests.

House prices increased unexpectedly in September, driven by lower borrowing costs, as the BoE is expected to continue cutting interest rates. However, consumer caution remains due to inflation and concerns about possible tax hikes in the upcoming budget.

On Thursday, the U.S. dollar reached a six-week high, driven by strong U.S. economic data and safe-haven demand due to rising tensions in the Middle East and the impact of a dockworker strike. The dollar also benefited from expectations of dovish monetary policies in other major economies, such as the eurozone, the UK, and Japan.

The dollar's rise was further supported by Wednesday's ADP private payrolls report, which showed a stronger-than-expected increase in jobs. This added to positive expectations for Friday’s nonfarm payrolls report, leading to speculation that the Federal Reserve may slow down its rate cuts.

In September, U.S. services sector activity surged to its highest level in 18 months, driven by a significant increase in new orders, indicating that the economy remained strong in the third quarter. The services sector accounts for more than two-thirds of the U.S. economy. However, employment in the sector slowed, suggesting a cooling labor market.

Meanwhile, new orders for U.S.-manufactured goods unexpectedly declined by 0.2% in August, following a revised 4.9% rise in July. This, along with a decrease in shipments of core capital goods, suggests a slowdown in business investment on equipment in the third quarter, after robust growth in the previous quarter.

Although the dollar has weakened over the past quarter, as traders bet on a decline, recent strong U.S. economic data and geopolitical risks have bolstered its appeal. Analysts expect Friday’s labor market data to provide further insight into the future path of U.S. monetary policy, with potential implications for the dollar’s direction.

Data for Technical Analysis (1D) CFD GBP/USD

Resistance : 1.3235, 1.3279, 1.3350

Support : 1.3093, 1.3049, 1.2978

1D Outlook   

Source: TradingView 

Buy/Long 1 If the support at the price range 1.3013 - 1.3093 is touched, but the support at 1.3093 cannot be broken, the TP may be set around 1.3237 and the SL around 1.2973, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.3235 - 1.3315, TP may be set around 1.3423 and SL around 1.3053, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.3235 - 1.3315 is touched, but the resistance 1.3235 cannot be broken, the TP may be set around 1.3051 and the SL around 1.3355, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.3013 - 1.3093, TP may be set around 1.2865 and SL around 1.3275, or up to the risk appetite.       

Pivot Points Oct 4, 2024 05:52AM GMT