• The Bank of England started its rate-cutting cycle on Thursday with a quarter-point cut.

• The US ISM manufacturing PMI fell to an 8-month low of 46.8 in July.

• US unemployment claims rose, indicating a weaker labor market.

The GBP/USD outlook indicates strong bearish sentiment, with the pound extending its decline following the Bank of England’s rate cut on Thursday. Meanwhile, the dollar fell after data revealed a faster-than-expected slowdown in the US economy. At the same time, markets raised expectations for Fed rate cuts.

The Bank of England started its rate-cutting cycle on Thursday with a quarter-point cut. Although a cut was likely, the market had yet to fully price it in. Therefore, the pound plunged after the meeting. The BoE has joined the ECB and BoC in lowering borrowing costs ahead of the Fed.

However, the US central bank is also edging closer to rate cuts. Notably, at the policy meeting on Wednesday, Powell said the Fed will cut by September if inflation comes in line with expectations. However, this outlook remains data-dependent.

The dollar was initially stronger on Thursday amid safe-haven demand. Notably, tensions in the Middle East rose after the assassination of a Hamas leader. This incident spooked investors, who dumped risky assets and bought the dollar.

However, the move later reversed after US data pointed to a rapid economic decline. Notably, the ISM manufacturing PMI fell to an 8-month low of 46.8 in July. Figures below 50 indicate a contraction in the sector. Elsewhere, US unemployment claims rose, suggesting a weaker labor market. These reports led to an increase in Fed rate cut expectations. Investors expect the Fed to cut rates three times before the year ends.

GBP/USD key events today

• US average hourly earnings m/m
• US nonfarm employment change
• US unemployment rate

GBP/USD technical outlook: Bearish bias strengthens with new swing low

On the technical side, the GBP/USD price has extended its decline below the 30-SMA. Meanwhile, the RSI is almost entering the oversold region, strengthening the bearish bias. However, the price has reached strong support at the 1.2700 level. If bears remain strong, GBP/USD will soon break below 1.2700 to retest the 1.2620 support level.

However, if the 1.2700 support holds firm, the price might bounce to retest the 30-SMA before the downtrend continues.

https://www.forexcrunch.com/blog/2024/08/02/gbp-usd-outlook-pound-plummets-as-boe-lowers-rates/