The Relative Strength Index (RSI) indicator on the 4-hour chart stays near 50, pointing to a loss of bearish momentum. Meanwhile, GBP/USD trades between the 100-day and the 200-day Simple Moving Averages (SMA), currently located at 1.3000 and 1.2820, respectively.
If GBP/USD rises above 1.3000 (100-day SMA) and starts using this level as support, it could face next resistance at 1.3050 (static level) before 1.3100 (50-day SMA). On the downside, interim support is located at 1.2870 before 1.2820 (200-day SMA). A daily close below 1.2820 could attract technical sellers and open the door for another leg lower toward 1.2760 (static level).
GBP/USD lost over 1% on Wednesday and registered its lowest daily-close since mid-August. The pair corrects higher toward 1.2950 in the European morning on Thursday as investors prepare for the Bank of England's (BoE) and the Federal Reserve's (Fed) monetary policy decisions.
The unabated US Dollar (USD) strength weighed heavily on GBP/USD on Wednesday as markets reacted to Donald Trump's victory in the US presidential election. The benchmark 10-year US Treasury bond yield rose nearly 4% and the USD Index, which gauges the USD's valuation against a basket of six major currencies, registered its largest one-day gain, rising over 1.5%.
The BoE is forecast to cut the bank rate by 25 basis points (bps) to 4.75%. Markets expect two policymakers to vote for a no-change. In case more policymakers vote in favor of keeping the policy rate steady, the immediate reaction could boost the Pound Sterling and help GBP/USD extend its recovery. On the flip side, a rate cut decision with a unanimous vote could cause GBP/USD to turn south.
Following Trump's victory, Ahmet Kaya, principal economist at the UK's National Institute of Economic and Social Research (NIESR), voiced his concerns over the proposed tariff policies. "Relative stability is under serious threat by the potential raising of import tariffs in the United States," Kaya said during a presentation of NIESR's latest forecasts. If BoE Governor Andrew Bailey comments on threats to the UK growth outlook, markets could see that as a dovish tone and make it difficult for Pound Sterling to stay resilient against its rivals.
Later in the day, the Fed is seen lowering the policy rate by 25 basis points (bps) to the range of 4.5%-4.75%. Fed Chairman Jerome Powell will surely be asked about how Trump policies, especially in regard to tax cuts and increased tariffs, could influence the monetary policy in the near future. Powell is unlikely to respond to these questions and repeat that they will stick to a data-dependent approach to policymaking.
According to the CME Group FedWatch Tool, markets are currently pricing in a nearly 70% chance of the Fed lowering the policy rate by another 25 bps in December. If Powell reaffirms that they are likely to lower the policy rate again at the last policy meeting of the year, the market positioning suggests that the USD has more room on the downside. On the other hand, the USD could regather its strength and force GBP/USD to stay on the back foot, if Powell leaves the door open for a policy hold next month.
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