Is GBP/USD Running Out Of Steam? – GBP/USD Analysis

Key Points

• GBP/USD will print a third consecutive week of gains after surging to fresh yearly highs. 
• Core PCE becomes weaker, and the pressure is on the US dollar again.
• The Fed / BoE policy divergence is making GBP/USD a difficult sell at the current levels, and traders must remain patient for a dip.
• Is GBPUSD due for a correction?

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Market Overview

It has been yet another good week for GBP/USD buyers, with this forex pair printing its third consecutive week of gains. The hint for traders that this market was heading higher was on Monday when the price closed above August’s high at 1.32843.

GBP/USD trades at fresh yearly highs and looks nailed on to print a third consecutive month of gains, barring any miraculous changes from now until the end of the month. Traders looking to join the trend must exercise patience and wait for any dips into key support areas before buying this market.

Core PCE Report In Focus

Today was all about the US Core PCE Inflation report, and today’s reading showed prices increased at a slower rate than forecast on a monthly basis (0.1% actual vs 0.2% forecast). The yearly figure of 2.7% came in slightly higher than last month’s yearly figure of 2.6%. Still, with personal income and spending coming in lower than anticipated, the dollar index is falling as a result.

It’s worth noting that inflation data has taken a back-seat over recent weeks because it is clear that price rises are heading in the right direction. Therefore, with this report not chucking out any major surprises, it could easily be forgotten with Non-Farm Payrolls lurking next week.

Fed vs. BoE Policy 

In its latest meeting, the Federal Reserve opted for a more significant rate cut of 50 instead of taking a more cautious approach. The language that followed from Jerome Powell and most of the FOMC members was treated as dovish. For example, Powell said, “There was a lot of discussion back and forth, there was also broad support for the decision that the committee voted on.” In other words, it was pretty unanimous.

The Bank of England opted to hold rates at 5% in its recent meeting, and the voting split showed a hawkish surprise, with fewer members voting for a rate cut. Andrew Bailey seemed more concerned about elevated price pressures and was treated as “less dovish.”

This policy divergence between the Bank of England and the Federal Reserve has meant that the GBPUSD has been trending higher for a few weeks. However, this is now priced in, meaning it won’t take much movement in either direction to see some reversal in GBPUSD. However, more of the same and expect price dips in GBPUSD to be bought.

GBP/USD Running Out Of Steam?

GBP/USD’s bullish structure has been confirmed by convincingly breaking August’s swing high at 1.32843. This is yet another “higher high,” and now traders must assess the following price action to see if that trend remains intact.

Traders looking to sell in this market may be encouraged by the strong bearish RSI divergence shown on the daily time frame. Should the market top out here, the price could fall to the 61.8% Fibonacci retracement at 1.31700, where buyers are expected to step in. A close below 1.30000 would be a sign that this market is reversing.