Market Analysis

Pound Rebounds While Bank of England Prepares for Further Rate Cuts

Amos Simanungkalit · 07 Nov 202433.2K Views

Image Credit: Getty Images

The British Pound (GBP) saw a sharp recovery to nearly 1.2935 against the US Dollar (USD) during Thursday's London session, following a decline to an almost 11-week low of 1.2830 on Wednesday.

This rebound occurred as the US Dollar (USD) experienced a slight correction after a significant rally. The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, fell to approximately 104.90 after reaching a four-month high of 105.40.

The surge in the US Dollar was largely attributed to the overwhelming victory of Republican candidate Donald Trump over Kamala Harris, his Democratic rival. The Greenback's appeal strengthened as traders reacted to Trump's proposals to raise tariffs universally by 10% and lower corporate taxes, which were seen as favorable for the US Dollar.

Higher tariffs could stimulate demand for domestic goods, while tax cuts for corporations might boost investments by leaving more money for businesses. This scenario could lead to higher spending, labor demand, and inflation, potentially prompting the Federal Reserve (Fed) to adopt a more hawkish stance on interest rates.

As investors await key signals regarding Trump's impact on the US economy and the Fed’s interest rate strategy, attention turns to the Fed's policy meeting scheduled for 19:00 GMT. A 25 basis point rate cut is widely expected, which would bring rates to the 4.50%-4.75% range.

For the Pound, the recovery came after finding support near the 200-day Exponential Moving Average (EMA) at 1.2860. However, the short-term outlook remains bearish as the 20-day and 50-day EMAs, around 1.2990 and 1.3030, respectively, are on a downward trajectory.

Additionally, a breakdown below the lower boundary of a rising channel on the daily chart suggests further downside potential. The 14-day Relative Strength Index (RSI) is hovering around 40.00, and if it fails to hold, bearish momentum may resume. The key support level for GBP/USD remains at 1.2800, while resistance is expected near the 1.3000 psychological level.