Large traders who had maintained the expectation that the Fed would need to adopt an aggressively dovish stance over the past few weeks, which sustained the GBP/USD in elevated territory despite consistently choppy conditions, faced a setback in their Forex positions on Wednesday. GBP/USD exhibited signs of volatility on Tuesday as it gradually declined, and those concerns were confirmed on Wednesday. Despite the Federal Funds Rate in the U.S. being reduced by 25 basis points to 4.00% on Wednesday, the GBP/USD demonstrated that the 1.33000 level was not sustainable on Tuesday as anxiety increased. Following the Fed’s policy statement, the 1.32000 level appeared to be at risk. By Thursday, the 1.31200 ratio began to face challenges, and Friday’s lows for the GBP/USD approached the 1.30970 range. The Federal Reserve cited the U.S. government shutdown as a rationale for its hesitance to implement an additional interest rate cut in December.
While Jerome Powell, the Federal Reserve Chairman, maintained a flexible stance on interest rate decisions for December, financial institutions expressed disappointment over the ambiguity presented. The USD exhibited strength across the Forex market, while the GBP/USD demonstrated a strong correlation with broader market trends, resulting in a notable decline. The U.S. government shutdown is poised to extend into the upcoming week, presenting a persistent political challenge with no clear resolution in sight. For those who believe that large banks do not engage in speculation on Forex values and simply allow their clients to bet on prices, it is important to note that financial institutions actively participate in commercial cash forward positions for their corporate clients.
The GBP/USD, which had been fluctuating between the 1.34000 and 1.35000 levels over the past few months, exhibiting some outliers but maintaining a relatively stable range, experienced a significant decline this past Wednesday. The likelihood of the U.S. government releasing official jobs numbers this Friday appears low due to the ongoing government shutdown. Official U.S. government offices continue to provide limited economic data. The upcoming week may present challenges regarding risk appetite in the Forex market. As uncertainty escalates regarding U.S. interest rates for December, financial institutions could experience additional volatility. The anticipated price range for GBP/USD is between 1.29100 and 1.33100.
The downward price movement observed last week in the GBP/USD was significant. However, this is not the first instance of traders encountering rapid conditions. Effective risk management will be crucial in the upcoming period. The perspective that the GBP/USD has experienced excessive selling might appeal to certain day traders; however, it is advisable for them to reassess their forecasts in light of historical price action that has been observed. The 1.31000 support level may seem inadequate, yet the price action observed this past Friday demonstrated its potential to be breached. Although it may appear somewhat speculative to view the 1.30000 level as a target for trading in the upcoming week, it is important to note that if risk-averse trading increases for the GBP/USD, the currency pair was considerably below this value in March and April of this year. Indeed, the GBP/USD appears to be oversold, and bullish outlooks could be validated in the weeks and months ahead. However, it is essential to exercise caution regarding the short and near-term, as volatility is expected to persist in trading this week.