As BoE Rate Cut Expectations Rise, the Pound May Face Pressure and Weaken

Summary:

The UK labor market is showing signs of weakness, and economic growth is underperforming expectations, which has intensified market expectations for a rate cut at the Bank of England's (BoE) February monetary policy meeting.

SELL GBPUSD

Close Time

CLOSED

1.23215

Entry Price

1.19800

1.23900

1.32217 -0.00147 -0.11%

68.5

Pips

Loss

1.19800

1.23900

Exit Price

1.23215

Entry Price

1.23900

Fundamentals

On Tuesday, the UK's Office for National Statistics (ONS) reported that the unemployment rate, as measured by the International Labour Organization (ILO), unexpectedly rose to 4.4%, up from 4.3%. Employment numbers also fell sharply, marking the largest decline since November 2020. This indicates a weakening trend in the UK labor market and paves the way for a potential rate cut at the BoE's monetary policy meeting on February 6.

Moreover, inflation data released last week showed a surprising slowdown, while December retail sales data indicated that economic growth is lagging behind expectations. As a result, the market widely anticipates that the BoE will cut the benchmark interest rate by 25 basis points to 4.5% at its next policy meeting. The rising expectations for a BoE rate cut are likely to put downward pressure on the pound.

On the US dollar side, the market generally expects the Federal Reserve to hold interest rates steady at its late-January meeting. This means the dollar is likely to remain supported, and the GBPUSD pair may be more inclined to decline in the short term.

Technical Analysis

As BoE Rate Cut Expectations Rise, the Pound May Face Pressure and Weaken_1

The daily chart of GBPUSD shows a clear downtrend, with the price consistently held below the moving averages, which are in a bearish alignment. This indicates strong bearish momentum and a high likelihood of the trend continuing.

Currently, after breaking below the 1.2350 support level, GBPUSD has continued to fall sharply. However, a short-term rebound to around 1.2350 has been triggered by a minor pullback in the US dollar. The upward pressure is increasing, and the 4-hour chart is showing signs of further weakness, suggesting that the downtrend is likely to persist.

Traders are advised to focus on short positions on rallies. The first downside target is to watch whether the pair can break below 1.2100. If this level is breached, it could open up further downside potential for GBPUSD.

Trading Recommendations

Trading Direction: Sell

Entry Price: 1.2320

Target Price: 1.1980

Stop Loss: 1.2390

Valid Until: February 5, 2025, 23:00:00

Support: 1.2098/1.2036/1.1930

Resistance: 1.2358/1.2473/1.2575

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As BoE Rate Cut Expectations Rise, the Pound May Face Pressure and Weaken

Fundamentals

Technical Analysis

Trading Recommendations

Risk Disclosure