GBP/USD forecast: Forex Friday - September 27, 2024

Today the GBP/USD was finding itself a touch lower on the session but still on course to potentially close higher for the third consecutive month, barring a sharp drop in the next two trading sessions as we close out the third quarter, another one favouring risk assets. Up next, we have the Fed’s favourite measure of inflation before the attention turns to next week’s top tier US data that includes the monthly jobs report. The cable is now up around 5% year-to-date but remains below long-term resistance in the range between 1.3500 to 1.400 area, where it has repeatedly failed to conquer after the outcome of the Brexit vote in 2016. With rates approaching this area again, are we going to see another failure this year, or will a weakening US dollar allow it to gain further ground? It has been a week full of stimulus news from China and one where optimism over central bank easing around the world continued. With key US data upon us, a bit of a dollar recovery should not come as major surprise although this wouldn’t necessarily turn the GBP/USD forecast bearish.

GBP/USD weakens amid profit-taking

Today, the GBP/USD is down mainly because of a small rebound in US dollar against all major currencies, with the exception of the yen which soared back on the back of news Shigeru Ishiba, regarded as a supporter of the Bank of Japan’s plan to gradually hike rates, won the vote for leadership of Japan’s ruling party.  The greenback has been softening in recent times owing to the weakness in US data and speculation that the Fed might deliver one more outsized rate cut this year before proceeding with the usual pace of 25 basis point cuts. But the dollar selling has paused for breather today amid profit taking, and this has allowed the likes of the GBP/USD and EUR/USD to weaken a little. Domestically, there is not a lot of get excited about in the UK, but the yield advantage of gilts should keep the cable's downside limited. 

Mixed US data ahead of core PCE index

The dollar has remained on the backfoot, as Chinese monetary stimulus flowed into commodity markets, boosting many emerging market currencies, just as signs of a US slowdown keep piling up. Among this week’s data highlights was consumer confidence, which unexpectedly took a hit. Given the long-standing strength of the US consumer, this further cemented expectations of more aggressive rate cuts by the Fed. The rest of this week’s data releases were either in line with forecasts or slightly positive, all coming in ahead of the week's main event—today’s upcoming release of core PCE deflator for August. This is expected to print +0.2% month-over-month.

In a week full of top-tier US data, this JOLTS report could steal the show on Tuesday given how the Fed’s focus has shifted from inflation to employment, as highlighted by the outsized rate cut in September. If the job market continues to weaken, the chances of another 50-basis point rate cut at the Fed’s November meeting will increase, which could put additional pressure on the dollar. Also watch out this week for employment components of the ISM services and manufacturing PMIs.

GBP/USD forecast: Focus turns back to US jobs market next week

Among next week’s US employment indicators, the JOLTS Job Openings will be released on Tuesday while the monthly non-farm payrolls report will come in on Friday. There are no market-moving data from the US next week.

In a week full of top-tier US data, the JOLTS report could steal the show on Tuesday given how the Fed’s focus has shifted from inflation to employment, as highlighted by the outsized rate cut in September. If the job market continues to weaken, the chances of another 50-basis point rate cut at the Fed’s November meeting will increase, which could put additional pressure on the dollar. Also watch out this week for employment components of the ISM services and manufacturing PMIs.

The focus will then turn to the monthly nonfarm payrolls report on Friday. The US economy added 142K jobs in August 2024, below forecasts of 160K. July figures were revised lower by 25K and June by 61K. But the unemployment rate fell back to 4.2% as expected while average weekly earnings grew by 0.4%, more than expected. Worries over the health of the labour market saw the Fed cut rates by 50 basis points in September. If the job market cools further, then the likelihood of another 50-basis point rate cut at the Fed’s November meeting will rise further and potentially weigh on the dollar. However, the bigger risk could potentially arise from a surprisingly strong report, which could dent the current bullish GBP/USD forecast.

GBP/USD technical analysis

Source: TradingView.com

The trend is clearly bullish but with most of the bearish dollar story priced in, we could see a pullback soon ahead of next week’s US employment data.  The GBP/USD is also facing additional risk from long-term resistance seen around the 1.35 range. But one thing to keep an eye on is the momentum indicators such as the Relative Strength Index (RSI), reaching overbought levels. The weekly RSI is now above the overbought threshold of 70.0, while the daily RSI in state of negative divergence, making lower highs relative to underlying price action making higher highs. The bears need to remain patient though until a clear reversal signal emerges. But the RSI above 70 should serve as a warning for the bulls that rates may have gone up too far too soon.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R