Fundamental Overview
The USD came under some pressure on Friday as the risk-off sentiment caused by Trump’s threat of substantially increasing tariffs on China weighed on Treasury yields. Over the weekend, we had more soothing comments from Trump and other US officials which triggered a recovery in risk sentiment.
The positive mood is weighing a bit on the greenback amid lack of bullish catalysts. Domestically, nothing has changed for the US dollar as the US government shutdown continues to delay many key US economic reports. The dollar “repricing trade” needs strong US data to keep going, especially on the labour market side, so any hiccup on that front is likely to keep weighing on the greenback.
The market pricing shifted more dovish with 47 bps of easing by year-end and 115 bps cumulatively by the end of 2026. The BLS announced last week that it will release the US CPI report despite the shutdown on October 24, so that’s going to be a key risk event. In case we get hot data, we will likely see a hawkish repricing in interest rates expectations with the December cut being priced out. Conversely, a soft report shouldn’t change much in terms of pricing, but it will likely weigh on the greenback anyway.
On the GBP side, we haven’t got any meaningful change in the fundamentals. The BoE left interest rates unchanged at the last meeting but slowed the pace of QT. The forward guidance was mostly the same with the focus being more on the inflation side now. The UK continues to have a serious inflation problem with high core CPI, high wages and rising consumer inflation expectations.
The market is pricing just 7 bps of easing by year-end and 37 bps by the end of 2026. Tomorrow, we have the UK employment report but it’s unlikely to change much unless we get big deviations. The CPI next week should be more important for the BoE.
GBPUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that GBPUSD broke through a key support zone around the 1.3334 level but couldn’t sustain the breakout as the greenback weakened across the board on Trump’s actions. The price rose above the support zone and this is where we can expect the buyers to step in with a defined risk below the level to position for a rally into the 1.3588 level. The sellers, on the other hand, will want to see the price falling back below the support zone to pile in for a drop into the 1.3140 level next.
GBPUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more clearly the upward spike and the price now trading right around the support zone. Again, this is where we can expect the buyers to step in to target new highs, while the sellers will look for a break lower to pile in for new lows.
GBPUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor downward trendline defining the recent bearish momentum. The sellers will likely continue to lean on the trendline with a defined risk above it to keep pushing into new lows, while the buyers will look for a break higher to increase the bullish bets into the next trendline. The red lines define the average daily range for today.
Upcoming Catalysts
This week is going to be very light again in terms of data releases given the US government shutdown. Data like Retail Sales and Jobless Claims won’t be released. We will have lots of Fed speakers though with Fed Chair Powell scheduled for tomorrow. Tomorrow, we will also get the UK employment report and then the UK GDP on Thursday. The US CPI will be published despite the shutdown, which is scheduled for Friday October 24.
