Pounds to Dollars Outlook: Uptick US CPI Dampens Recovery, Eyes on 1.3000

However, the market’s reaction went favorable for the US dollar, resulting in pushing the risk assets to the downside. The GBP/USD outlook remains deteriorated after the CPI data release. The UK’s positive GDP numbers also didn’t help the pair to post a meaningful recovery.

GBP to USD Technical Outlook

The GBP/USD outlook remains feeble around the 1.3050 region. The CPI led losses hit 1.3015 but reversed the move soon creating a bullish pin bar on the 4-hour chart. However, the pair couldn’t break the high of the pin bar and stayed below the 20-period SMA.

If the low of the bullish pin bar at 1.3015 is broken, the bears may lead towards 1.3000. The previous swing low around 1.2950 is another key level that sellers could target.

Alternatively, the high of bullish pin bar is at 1.3093. If broken, the price could attempt to move above 1.3100 handle ahead of 1.3150.

Apparently, the 4-hour pin bar has paused the potential move in the pair in either direction. The succeeding candles have moved in a small range without a significant move. Hence, the market participants await a catalyst that could provide a fresh impetus to the market. This could be the retail sales data from both US and the UK and UK’s CPI data. These events are due next week and could potentially bring volatility.

On the daily chart, the price is well below the 20-day and 50-day SMAs. Meanwhile, the 100-day SMA at 1.2940 is still pointing upwards but could become the next key level for the sellers. All the three SMAs on the chart have formed a bullish channel. The broader outlook still remains with the buying bias. However, if the price breaks 1.3000, the bearish trend may gather further traction resulting in a major downside move.

On the flip side, consolidation around the current levels may create doubts among the sellers that could boost the pound. The ejection of sellers may bring a fresh up wave. However, this won’t be a smooth ride either. The volatile nature of the currency can trigger a whipsaw movement as well.

Key Support Levels

Support 1: 1.3015 which is recent swing low marked this week.

Support 2: 1.3000, a psychological price level supporting the pair for the time being.

Support 3: 1.2950, swing low area coincided with the 100-day SMA.

Key Resistance Levels

Resistance 1: 1.3093, a recent swing high marked on the CPI day.

Resistance 2: 1.3100, a psychological mark that could prevent the upside for the time being.

Resistance 3: 1.3150, a horizontal level and a round number.

GBP to USD Fundamental Outlook

The US CPI figures dropped to 2.4% YoY in September, down from 2.5% in August. However, the core CPI, which is volatile due to the inclusion of energy and food prices, remained high. It hit 3.2% YoY, from 3.2% in August. It shows consistent inflationary pressure.

Another unexpected development was the US Initial Jobless Claims that went up to 258k in the last week. It’s the highest level since June 2023 which shows a softer tone in the labor market.

The mixed data has spurred some confusion in the markets as the soft jobs market may push the Fed for aggressive rate cuts while the uptick in core inflation could still ask to maintain higher interest rates. As per the CPE FedWatch Tool, 90% probability exists for the 25-bps rate cut in the November 7 meeting.

From the UK, the GDP MoM data was released early on Friday. The numbers came at 0.2% that met expectations. The pounds to dollars price recovered some ground. However, the data was not strong enough to give buyers a reason to spark a meaningful rally. The move was reversed as soon as the London session progressed.

The Bank of England’s potential rate cut during the month may also keep the pound under pressure. However, the Fed’s 50-bps cut this year and BoE’s pause may change the recent sentiment. The rally started in June amid Fed’s dovish outlook could seems to pause and correct lower before a potential upside continuation. Not to forget, 2024 is an election year and the US elections have always resulted in a volatile move across the forex arena.

Final Thoughts

The GBP/USD has remained in a downtrend since last week. The pair seems vulnerable as the US Core CPI data has ticked higher. The traders should cautiously look for the coming events like US PPI to figure out further development on Fed’s outlook. Technically, the downtrend could pause around 1.2950 – 1.3000. However, the uncertain market conditions may trigger a bearish continuation.

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