GBPUSD Technical Analysis – UK Gilt Drop

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In today’s comprehensive GBPUSD technical analysis, we will first scrutinize the currency pair’s price action. Then, we will meticulously delve into the trading asset’s fundamental analysis.

GBPUSD Technical Analysis and Forecast

The GBPUSD currency pair experienced a downturn, reverting to the 50% Fibonacci support level. This decline was triggered by a drop in the UK’s 10-year Gilt yield. Current technical indicators are pointing towards a bearish trend. Specifically, the Relative Strength Index (RSI) has fallen below 50. Following that, the bars of the Awesome Oscillator have turned red. Both technical indicators show signs of potential further declines.

If sellers in the GBPUSD market succeed in keeping the price below the 38.2% Fibonacci resistance level, we could see an extended period of consolidation. In this technical analysis scenario, the next potential target for the price could be the Ichimoku cloud. The Ichimoku cloud, known for indicating potential future price movements, is also aligned with the 61.8% Fibonacci support level, reinforcing the possibility of the GBPUSD pair reaching this point.

GBPUSD Technical Analysis - UK Gilt Drop

GBPUSD Technical Analysis – UK Gilt Drop – 4H Chart

UK Gilt Drop as Rate Cuts Anticipated

Bloomberg—In the UK, the yield on 10-year government bonds, known as Gilts, has dropped to around 3.5%, a level not seen in the past eight months. This decrease is mainly due to expectations that interest rates will be cut in 2024. Meanwhile, the UK’s inflation rate has fallen to 3.8%, its lowest since September 2021.

This is a significant drop, as experts had predicted it would be around 4.4%. Additionally, the core inflation rate, excluding volatile items like food and energy, decreased to 5.1%, the lowest since January 2022. This is below the expected 5.6%.

Because of these developments, financial traders now strongly predict that the Bank of England will lower interest rates. They expect a total reduction of 143 basis points in the coming times. The first of these cuts is likely to happen in March.

There’s a high chance of five more cuts, each by a quarter-point, and a 70% probability of a sixth cut. Similarly, financial markets expect the Federal Reserve in the United States to reduce rates by 75 basis points in 2024.

  • 20 December 2023