The GBP/USD currency pair is experiencing a notable decline in the European session on Monday, reversing its earlier upswing around the pivotal 1.3000 level. As the US Dollar pauses its recent downside trajectory, a prevailing risk-on sentiment in the markets fails to bolster the pair’s momentum. Heightened tensions ahead of the Tuesday US presidential elections and growing expectations for a Federal Reserve rate cut are likely to cap GBP/USD’s retreat, creating a complex landscape for traders.
Current Market Dynamics
Despite a bullish gap that lifted GBP/USD toward 1.3000 early on Monday, the pair is struggling to maintain its footing above the crucial 1.2980 level, where the 100-day Simple Moving Average (SMA) resides. The Relative Strength Index (RSI) on the 4-hour chart remains slightly above 50, indicating a delicate balance between buying and selling pressures. As buyers exhibit hesitancy, the outlook for GBP/USD becomes increasingly cautious.
If 1.2980 holds as a resistance level, traders may see the next significant support emerge at 1.2940, followed by 1.2900. Conversely, should GBP/USD stabilize above 1.2980, the psychological barrier of 1.3000, coupled with the 20-day SMA, could serve as interim resistance, paving the way for a potential rally towards 1.3040.
Political Uncertainty and Its Impact
The broader context for the currency pair is shaped significantly by political uncertainty surrounding the upcoming US presidential election. Betting site PredictIt now assigns a 51% probability to Vice President Kamala Harris winning, marking her first lead over former President Donald Trump since early October. This political dynamic is weighing heavily on the US Dollar, as investors await clarity on the election outcome.
While US stock index futures trade mixed in early European trading, the cautious mood among investors suggests that many may refrain from taking substantial positions until the electoral results provide a clearer picture of the market’s future direction. A potential selloff in US equities following the opening bell could hinder any upward movement for GBP/USD, making this a critical time for traders to closely monitor market developments.
Economic Indicators and Their Implications
Amidst this political backdrop, the US economic calendar reveals Factory Orders figures for September, although market participants are unlikely to react strongly to this data. The recent report from the US Bureau of Labor Statistics highlighted a dismal rise of only 12,000 in Nonfarm Payrolls for October, a stark contrast to the 223,000 increase (revised from 254,000) recorded in September. This figure fell significantly short of the market expectation of 113,000, suggesting underlying economic challenges that could further complicate the Federal Reserve’s monetary policy decisions.
In light of the subdued job growth and potential impacts from recent hurricanes on payroll estimates, the Fed’s next steps will be crucial for the USD’s performance and, by extension, the GBP/USD exchange rate. Traders will be keenly watching for any indications of a shift in the Fed’s stance, especially as the central bank weighs the implications of political and economic uncertainties.
