GBP/USD Market Update: UK Inflation Cools, Dollar Firms, and Breakout Watch Intensifies
During the European session, the GBP/USD took another dip towards $1.3100 - a move it was egged on by plummeting UK gilt yields...
Quick overview
- GBP/USD dipped towards $1.3100 due to falling UK gilt yields and uncertainty surrounding the upcoming budget.
- UK inflation eased to 3.6% in October, increasing expectations for a potential Bank of England rate cut in December.
- The US dollar showed modest recovery despite rising expectations for a Federal Reserve cut, supported by safe-haven demand.
- A bullish breakout setup for GBP/USD is suggested if it closes above $1.3125, with targets set at $1.3188 and $1.3245.
During the European session, the GBP/USD took another dip towards $1.3100 – a move it was egged on by plummeting UK gilt yields and a huge amount of uncertainty over what the November 26 budget might bring. And to make matters worse, the 10-year Gilt yield plummited to 4.54% – a pretty strong indication that the government is going to start making some serious cuts to try and meet those borrowing rules.
Markets are also awaiting updated projections from the Office for Budget Responsibility, which is expected to downgrade both UK growth and productivity forecasts.
UK Inflation Cools, Strengthening Expectations of a BoE Rate Cut
The Pound faced additional downside pressure following the latest inflation data. UK CPI eased to 3.6% in October, reinforcing expectations that the Bank of England may deliver a 25-basis-point cut in December. Traders now price about an 80% probability of a rate reduction, pushing gilt yields lower and keeping the currency under pressure.
US Dollar Firms Despite Rising Fed Cut Expectations
The US dollar recovered modestly even as traders increased bets on a December Federal Reserve cut. Fed Governor Christopher Waller noted that the labor market continues to weaken and that inflation is “not a major problem” given soft employment trends—signals that support near-term easing. According to the CME FedWatch tool, markets now assign an 81% chance of a December cut, up from 71% a day earlier.
However, the Dollar remains supported by safe-haven demand and resilient underlying momentum, keeping GBP/USD capped.
Technical Analysis: GBP/USD Attempts Breakout as Momentum Builds
Now GBP/USD is pushing on through a stubborn descending trendline hovering around $1.3125 – one that has been rejecting any attempts at a rally since mid-October. But a sequence of higher lows near the $1.3048 pivot does suggest that buyers are starting to get in on the action, and to top it all off, price has finally taken back the 20-EMA, which is a definite positive sign for short-term momentum. However, the 200-EMA is sitting just overhead – acting almost like a big barrier to progress.
Momentum indicators are also starting to swing in favour of the bulls. The RSI has broken above 57 – its highest reading in a week- and there’s not even a hint of a bearish divergence – generally a good sign. And a nice, big bullish candle around $1.3085 was followed by a steady run of continuation candles rather than a complete reversal, suggesting that buyers are keen to defend any dips.
The presence of a larger ABCD harmonic pattern also suggests it could be about to play out, implying the corrective cycle is over.
GBP/USD Trade Opportunity: Bullish Breakout Setup
A potential long setup emerges if GBP/USD secures a 4-hour close above $1.3125.
- Entry: Above $1.3125 after confirmed breakout
- Target 1: $1.3188 (recent swing high)
- Target 2: $1.3245 (Fib resistance zone)
- Stop-Loss: Below $1.3080 (beneath recent higher low)
This setup blends a trendline break, rising momentum, EMA recovery, and supportive candle structure. For new traders: this is simply a strategy of buying only after the market proves that buyers are in control.
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