GBP/USD is trading close to multi-week lows below 1.3100 on Wednesday. The US Dollar adds to recent gains as the risk mood continues to sour. The outcome of the US Treasury's 10-year note auction and FOMC Minutes could drive the pair action later in the day.
The Relative Strength Index (RSI) remains in the bearish territory, well below 50, while staying above 30, suggesting that GBP/USD could stretch lower before staging a technical correction.
Immediate support aligns at 1.3050 (static level) before 1.3000 (round level, static level) and 1.2940 (static level). In case GBP/USD manages to clear 1.3100 (Fibonacci 78.6% retracement level of the latest uptrend), it could extend its recovery toward 1.3170 (Fibonacci 61.8% retracement).
GBP/USD managed to post small gains on Tuesday but failed to reclaim 1.3100. The pair stays relatively quiet in the European session on Wednesday as investors wait for the Federal Reserve (Fed) to publish the minutes of the September policy meeting.
The recovery seen in Wall Street's main indexes made it difficult for the US Dollar (USD) to gather strength during the American trading hours on Tuesday, allowing GBP/USD to cling to modest daily gains.
Early Wednesday, the souring market mood, after a nearly 7% decline recorded in China's Shanghai Composite Index, caps GBP/USD's upside.
The Fed cut the policy rate by 50 basis points (bps) after the September meeting. Investors will scrutinize the FOMC Minutes to see whether policymakers are willing to consider more large rate cuts in the near future.
If the publication shows that officials don't think that they will need to continue to ease the policy aggressively moving forward, the immediate market reaction could support the USD. Nevertheless, the CME FedWatch Tool shows that markets already price in a nearly 90% probability of the Fed opting for a smaller, 25 bps, rate reduction at the November meeting. Hence, the positive impact of a hawkish FOMC Minutes on the USD could remain short-lived.
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