The GBP/USD exchange rate remained in a tight range this week as investors focused on the recent statements by Jerome Powell and Andrew Bailey, and the recently released UK jobs numbers. It was trading at 1.3342 on Wednesday, down from the year-to-date high of 1.3790.
Dovish Federal Reserve statements
The GBP/USD exchange rate was under pressure after Jerome Powell hinted that the Federal Reserve will continue cutting interest rates in the coming meeting, citing the downward risks to the labor market.
Equally important, Powell hinted that the bank will either end or dramatically slow down the quantitative tightening process, which involves reducing the size of the balance sheet.
Other Federal Reserve officials have hinted that the bank will continue with its cuts. In her statement, Susan Collins, the head of the Boston Fed, said that she supported two more cuts this year. She justified the view noting that inflation risks were contained, but that the labor market was a bigger risk. She said:
“With inflation risks somewhat more contained, but greater downside risks to employment, it seems prudent to normalize policy a bit further this year to support the labor market.”
The next important catalyst for the GBP/USD exchange rate will be statements by some Federal Reserve officials, many who have supported interest rate cuts in the past.
Stephen Moran, who became a Fed governor in September, will likely continue to make the case for more cuts i the next meetings. He was the first governor to vote for a 0.50% cut in the last meeting.
Christopher Waller, another highly dovish official, will continue to make the case for cuts in the coming meetings. Other Fed members to talk will be Raphael Bostic and Jeffrey Schmid.
The GBP/USD pair will also react to the upcoming Federal Reserve Beige Book, which shows the performance of the key US regions.
UK GDP data ahead
The other key catalyst for the GBP/USD exchange rate will be the upcoming UK GDP data. Economists expect the data to show that the economy slowed to 1.3% in August from the previous 1.4%. On a MoM basis, the economy is expected to have grown by 0.1% after stalling in July.
The Office of National Statistics (ONS) will also react to the upcoming manufacturing and industrial production numbers.
These reports come two days after it reported weak jobs numbers. In a statement on Tuesday, Andrew Bailey, the BoE Chair hinted that the bank will hold rates steady in the coming meetings as inflation is a big challenge.
GBP/USD technical analysis
GBPUSD chart | Source: TradingView
The GBP/USD exchange rate has pulled back in the past few weeks. It dropped from a high of 1.3721 in September to the current 1.3350.
The pair has formed a head-and-shoulders pattern and is now at the neckline. It has retested that neckline. Therefore, the pair will likely continue falling as sellers target the key support at 1.3135, its lowest point on August 1.
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