GBP/USD drops for three straight days, despite BoE’s Bailey efforts to rescue Sterling

• GBP/USD continues its downtrend, touching a weekly low of 1.2241.
• BoE Governor Andrew Bailey’s comments on inflation targets and a restrictive policy stance contrast with Chief Economist Huw Pill’s openness to rate cuts in 2024.
• Markets have priced in a potential BoE rate cut for August 2024, adding pressure on the Pound.

GBP/USD prolongs its agony, extending its losses to three consecutive days, and falls to a weekly low of 1.2241 as market sentiment shifted sour, as portrayed by Wall Street posting losses. At the time of writing, the major is trading at 1.2287, down 0.10%.

The British Pound struggles as economic concerns weigh on sentiment, with traders eyeing UK GDP data and Fed Chair Powell’s speech for direction

A scarce economic docket left traders adrift to Bank of England’s (BoE) Governor Andrew Bailey comments, who said he’s optimistic that inflation would hit the BoE’s target of 2% in 2025, despite lying at 6.7% according to September´s data. He emphasized the need for a restrictive policy and pushed back against BoE’s Chief Economist Huw Pill, who said that market pricing in a rate cut in August 2024  “doesn’t seem too unreasonable.”

Interest rate futures have fully priced in a quarter of a percentage points BoE rate cut for August 2024, with an additional one to November 2024.

In the meantime, GBP/USD traders brace themselves for the release of third-quarter Gross Domestic Product (GDP) data, which is expected to show a contraction of 0.1% QoQ, on Friday.

Across the pond, the US economic calendar was light, led by Federal Reserve´s (Fed) officials. Fed Governor Lisa Cook said that persistent inflationary pressures and China’s economic slowdown could endanger financial stability. She added that the Middle East conflict and the Russia and Ukraine war could put the financial markets under a lot of stress, adding that geopolitical tensions could change the US economic outlook.

Given the fundamental backdrop, the GBP/USD will most likely remain sideways during the next couple of days as traders await UK GDP data and Fed Chair Jerome Powell’s speech. Powell’s hawkish remarks could boost the Greenback and exacerbate a drop toward the 1.2200 figure. If UK GDP data on Friday comes better than expected, look for a re-test of the 1.2400 figure.

GBP/USD Price Analysis: Technical outlook

The GBP/USD daily chart portrays the pair as neutral to slightly downward biased, with the exchange rate below the 50 and 200-day moving averages (DMAs). Even though the pair achieved successive series of higher-highs and higher-lows, downside risks remain unless it breaches the 200-DMA at 1.2433. First support is seen at 1.2241, followed by the 1.2200 figure. A breach of the latter will expose the October 26 cycle low of 1.2069. Conversely, if GBP/USD climbs past 1.2300, that could pave the way for a re-test of the 200-DMA.