- GBP/USD edges higher on Friday as US Dollar traders take profit after the Greenback's strong rally to new highs for 2024.
- The rebound faces pressure due to weaker UK GDP growth data, which raises concerns about the country's economic outlook.
- Despite the data, some analysts remain optimistic about the UK's prospects, offering support to Sterling.
GBP/USD rises on Friday, reaching the 1.26790s as traders reduce their short positions before the weekend. The pair claws back from intraday oversold levels seen on Thursday, when it dropped nearly 2% for the week. This decline came after the US Dollar (USD) surged, driven by positive economic data, the residual effects of Trumponomics, and Federal Reserve (Fed) Chairman Jerome Powell’s optimistic remarks.
Despite the weak UK growth data released on Friday, the GBP/USD has managed to recover. Normally, such data would send the pair lower, but traders seem to be viewing the US Dollar as overvalued. The US Dollar Index (DXY) hit a new 2024 high on Thursday, which could be tempering traders' enthusiasm for the Dollar.
The Pound Sterling (GBP) is strengthening even in the face of negative UK GDP growth, which showed a 0.1% contraction in September, worse than the expected 0.2% decline. Additionally, the preliminary Q3 GDP growth of 0.1% QoQ was a slowdown from 0.5% in Q2 and fell short of expectations. Despite this, the market has not seen the usual sell-off in the Pound. Analysts believe the continued confidence in the UK's economic recovery and an overbought Dollar have supported GBP.
Capital Economics, for example, has not changed its view on Bank of England (BoE) policy despite the poor data. While the weaker GDP data slightly raises the chances of a rate cut in December, they maintain their forecast that the BoE will hold rates at 4.75% before cutting by 25 basis points in February.
On Thursday, GBP/USD touched five-month lows after Chairman Powell’s comments and strong US economic data, including a rise in the Producer Price Index (PPI) and lower-than-expected Jobless Claims. These data points reinforced the Fed’s cautious stance on rate cuts. Powell’s remarks about the strong US economy further supported the USD, pushing GBP/USD lower.
Technical Analysis: GBP/USD trends lower
GBP/USD is currently testing support in the mid-1.2600s, with the pair in a downtrend on both short and medium-term bases. A break below the Thursday low of 1.2630 could see the pair decline towards the next support target around 1.2613 (late June lows), followed by 1.2500 (a key psychological level), and 1.2452 (early May lows).
The Relative Strength Index (RSI) is near oversold territory, suggesting that short positions should be cautious. Despite the short-term bearish outlook, the long-term trend for GBP/USD remains bullish, leaving room for potential recovery if the pair enters a longer-term upcycle.
GBP/USD Daily Chart
