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British Pound Forecast: GBP/USD Pushing Higher Despite Growing Rate Cut Calls

British Pound Forecast: GBP/USD Pushing Higher Despite Growing Rate Cut Calls

Nick Cawley, Senior Strategist

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British Pound Forecast: GBP/USD, EUR/GBP

  • First UK rate cut fully priced-in at the May MPC meeting.
  • US dollar weakness allowing cable to push higher.

Most Read: GBP Breaking News: CPI Miss Aligns UK with Other Economies

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For all market-moving economic data and events see the DailyFX Economic Calendar

The Bank of England is set to cut interest rates by at least 125 basis points next year with the first quarter-point reduction seen at the May 9th MPC meeting. This dovish re-pricing is in part due to the latest UK inflation report (see story above) that showed the rate of inflation falling sharply. Such has been the recent fall that some banks now see UK inflation at 3% at the end of H1, while a couple of others see it down at the BoE’s target of 2% over the same time frame.

UK government bond yields continue to fall with the rate-sensitive 2-year now trading at 4.02%, down from a mid-July spike high of 5.77%, while the 10-year UK benchmark is offered at 3.50% a fresh eight month low.

Lower inflation rates will be needed next year to help kick-start the ailing UK economy that is close to falling into recession, according to the latest GDP statistics released by the ONS earlier today. Final Q3 GDP contracted by 0.1% missing expectations, while Q2 GDP data was revised to flat from a prior reading of +0.2%.

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With a series of UK rate cuts expected next year, Sterling would normally weaken, but this is not the case as a raft of other major economies look to slash their borrowing costs in 2024. The latest CME Fed Fund expectations are currently showing seven US rate cuts next year, although the last one is finely balanced.

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Cable is benefitting from US weakness and is back above 1.2700 and testing a clutch of prior multi-month highs. A break and open above last Thursday’s 1.2794 high will leave cable eyeing the 23.6% Fibonacci retracement level at 1.2823 before a prior small swing high just under 1.300 comes into focus.

GBP/USD Daily Chart

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Retail trader GBP/USD data show 48.44% of traders are net-long with the ratio of traders short to long at 1.06 to 1.The number of traders net-long is 8.07% lower than yesterday and 14.93% higher than last week, while the number of traders net short is 6.45% higher than yesterday and 11.61% lower than last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/USD prices may continue to rise.

What Does Changing Retail Sentiment Mean for GBP/USD Price Action?

GBP/USD Mixed
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 8% 0% 4%
Weekly -15% 6% -5%
What does it mean for price action?
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Sterling is on the back foot against the Euro and is currently trying to break through the 50- and 200-day simple moving averages. EUR/GBP remains a range trade with the pair seemingly stuck in a rough 0.8500 – 0.8750 range for the last eight months. Unless either UK or EU rate expectations change markedly, this range should hold going forward.

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EUR/GBP Daily Chart

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Charts using TradingView

What is your view on the British Pound – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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