The short-term outlook for GBPUSD hints at heightened volatility with a moderate bearish bias. The pair is likely to test the psychologically significant 1.3180 support level. What could push it lower? Recent shifts in market expectations regarding the Federal Reserve’s and the Bank of England’s monetary decisions amid the ongoing Middle East crisis.
In September, the Fed raised interest rates to the 3.75%–4.00% range. However, the latest Nonfarm Payroll data turned out to be quite disappointing—a modest increase of 29,000 versus the anticipated 90,000. These figures prompted US policymakers, including John Williams, to tone down their hawkish rhetoric. As a result, the previously projected 64% chance of a rate hike at the October 28 meeting slid to just 22%–25%. So, it seems that the American regulator will pause until December, which limits the long-term potential for dollar growth. Concurrently, the UK central bank keeps borrowing costs at the 3.75% level. The Middle East conflict and the subsequent surge in oil prices, with Brent crude flying above $101 per barrel, have recently pushed inflation up to 3.1%. The market is now pricing in a tougher scenario: two hikes in the fourth quarter (Q4), meaning that the first move could be made on November 5, bringing borrowing costs to 4.25%. This monetary divergence should support the pound in the medium run.
Short-term pressure on sterling stems from domestic uncertainty. Investors tend to act cautiously ahead of Chancellor John Healey’s state budget presentation in late October. What do they fear? Their concerns are closely tied to the fiscal deficit. Additionally, the global risk-off regime due to Middle East jitters traditionally forces major players to seek refuge in USD, drawing capital away from the pound into the greenback.
This week, GBPUSD is likely to continue its decline toward 1.3180 amid strong demand for the safe-haven dollar, followed by the formation of a base for a rebound driven by expectations of a hawkish BoE decision in November.
The overall recommendation is to sell GBPUSD. Profits should be taken at 1.3180. Stop Loss could be set at 1.3240.
The volume of the open position should be calculated so that the potential loss (protected by a Stop Loss order) does not exceed 1% of your deposit. If your account balance does not allow opening a position of this size, it is better to avoid entering the market on this signal and wait for other trade options that meet low-risk criteria.
This content is for informational purposes only and is not intended to be investing advice.
