Given the prevailing circumstances, it would be prudent to exercise caution before making bullish bets on the pair | 07 November 2024

Events to pay attention to today:

14:00 EET. GBP - Bank of England Interest Rate Decision

21:00 EET. USD - FOMC Rate Decision

GBPUSD:

The GBP/USD pair saw some buying activity during the Asian session on Thursday, resulting in a move away from the lowest level since mid-August, around 1.2835-1.2830, which was reached the previous day. Spot prices are now aiming to consolidate above 1.2900 as market attention shifts to risks from key central bank developments.

The Bank of England (BoE) is scheduled to announce its policy decision later today. Market expectations are for a second interest rate cut this year, reflecting slowing inflation. However, expectations that UK Finance Minister Rachel Reeves' first budget will result in higher inflation and necessitate a more gradual reduction in interest rates have provided some support for the British pound (GBP). This, along with a modest decline in the US dollar, was the primary driver of the GBP/USD appreciation.

However, a notable correction in the dollar from Wednesday's four-month high appears unlikely in the context of optimistic expectations for higher growth and inflation under a second term of President Donald Trump. This could potentially lead to a reduction in the pace of interest rate cuts. The outcome of the two-day Federal Open Market Committee (FOMC) meeting, along with comments from Federal Reserve (Fed) Chairman Jerome Powell at the post-meeting press conference, will play a pivotal role in influencing the US dollar.

Meanwhile, the return of the so-called 'Trump trade' has kept US Treasury bond yields near multi-month peaks, which should serve as a tailwind for the dollar and limit GBP/USD's upside. It would therefore be prudent to wait for strong buying before confirming that spot prices have formed a short-term bottom.

Trading recommendation: Trading mainly by Sell orders from the current price level.

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