GBP/USD increasing pressure as positive US economic data boosts

The GBP/USD pair finds itself under increasing pressure as positive US economic data boosts the dollar, causing it to dip below its 200-day Moving Average. With the odds of a November rate hike by the Fed standing at 32.45% and diminishing expectations of a BoE rate hike towards 6%, the GBP/USD’s outlook is becoming more bearish.

The Pound Sterling (GBP) has faced a second consecutive day of weakness against the US Dollar (USD) due to a series of upbeat US economic reports that have strengthened the Greenback. This shift in sentiment has increased demand for safe-haven assets, particularly the US Dollar.

Friday’s data revealed that Americans’ inflation expectations have decreased, as indicated by the University of Michigan (UoM) poll. Inflation is projected to rise to 3.1% for a one-year period, down from August’s reading, and is expected to reach 2.7% for a ten-year period. Despite this optimism, consumer sentiment declined to 67.7, falling below the forecast of 69.1.

The US Federal Reserve also reported that Industrial Production expanded by 0.4% MoM, slightly below July’s 1% but surpassing consensus forecasts. Furthermore, data from the New York Fed revealed that the Empire State Manufacturing Index for September improved to 1.9 from August’s figure of -21, exceeding expectations of a -10 decline.

Meanwhile, the money market futures remain skeptical about the possibility of the US Federal Reserve hiking rates once more before the end of the year, as indicated by the CME FedWatch Tool. For the upcoming week, the US central bank is expected to keep rates steady, with the odds of a 25 bps hike in November at a moderate 32.45% chance.

Nevertheless, US Treasury bond yields have risen, driven by the latest inflation reports on both the consumer and producer sides, showing an uptick after a year of deceleration. The US 10-year Treasury Note now yields 4.326%. However, the dollar is losing some of its momentum.

On the other side of the Atlantic, the Bank of England (BoE) is anticipated to raise rates by 25 bps, but it faces challenges such as a slowing economy. The Bank Rate is expected to be raised to 5.50%, but traders have scaled back previous expectations of a rate increase to 6%, with the odds for the November 2 meeting standing at around 15%.

The Fed is likely to keep rates unchanged in the US, but the economy remains robust, and investors are optimistic that the US central bank will achieve a soft landing. As a result, further downside pressure is anticipated in the GBP/USD pair, with monetary policy signaling that the BoE may be the first to blink and cut rates.