The Pound Sterling (GBP) sees a decline as the UK’s monthly GDP and factory data match market expectations. Concerns about a potential rate cut from the Bank of England (BoE) in August gained traction following weak employment figures for the three months ending January. Market sentiment turns cautious as hopes for a June rate cut by the Federal Reserve diminish.
During Wednesday’s European session, the GBP weakened, with the GBP/USD pair slipping to 1.2780 following reports from the United Kingdom Office for National Statistics (ONS) indicating that January’s GDP and factory data were broadly in line with forecasts.
The UK economy showed a 0.2% growth in January compared to the previous month, signalling a shallow recession in the latter half of 2023 and suggesting improving economic prospects.
The trajectory of the Pound Sterling moving forward will be influenced by signals regarding when the Bank of England will initiate interest rate reductions. Expectations for a rate cut in August have risen due to cooling labour market conditions and easing inflation expectations.
Market Movements: Pound Sterling Under Pressure, US Dollar Remains Steady
Following the ONS report of a 0.2% expansion in the UK economy in January, in line with expectations, the Pound Sterling faces downward pressure. Manufacturing production remained stagnant, while industrial production unexpectedly declined by 0.2%. These figures and a climb in the unemployment rate to 3.9% contribute to increased expectations of a rate cut by the BoE in August.
Additionally, the cautious market sentiment persists as stubborn US Consumer Price Index (CPI) data for February strengthen expectations of the Federal Reserve maintaining steady interest rates in the first half of 2024. The US Dollar Index (DXY) consolidates below 103.00.
Technical Analysis: Pound Sterling Extends Losses
The GBP/USD pair continues its downward trend for the third consecutive trading session, falling below the crucial support level of 1.2800. The asset is anticipated to decline towards the 20-day Exponential Moving Average (EMA) around 1.2720, with the 1.2700 level providing strong support for Pound Sterling bulls.
After reaching overbought territory, the Relative Strength Index (RSI) falls to 60.00, indicating a weakening bullish momentum.