GBP/USD slips to over two-week low below mid-year 1.3100 on Bailey’s dovish remarks

• GBP/USD is under intense selling pressure in reaction to Bailey’s dovish remarks.
• Bailey hints at more aggressive rate cuts and weighs heavily on the GBP amid a bullish USD.
• Reduced bets on a 50 basis point Fed rate cut in November and geopolitical risks benefit the dollar.

The GBP/USD pair continued to lose ground for the third day in a row – also marking the fourth day of a negative move in the last four – and fell to a more than two-week low in the first half of the European session on Thursday. Spot prices are currently trading below the mid-1.3100s, down nearly 1.0% for the day, and look vulnerable to further declines following dovish remarks from Bank of England (BoE) Governor Andrew Bailey.

In an interview with The Guardian newspaper published on Thursday, Bailey said there was a chance the BoE would become a little more aggressive in cutting rates if there was more good news on inflation. Markets reacted quickly and are now pricing in a 90% chance of a 25 basis point rate cut at the next BoE meeting in November. This in turn weighs heavily on the British Pound (GBP), which, along with the sustained buying of the US Dollar (USD), is contributing to the GBP/USD pair’s sharp intra-day decline.

Incoming data from the US indicated a still resilient labor market and forced investors to lower their expectations for more aggressive policy easing by the Federal Reserve (Fed). This, along with geopolitical risks stemming from ongoing conflicts in the Middle East, is helping the safe-haven USD extend this week’s recovery from its July 2023 low. The USD Index (DXY), which tracks the greenback against with a basket of currencies climbing to a three-week high and putting further pressure on the GBP/USD pair.

With the latest leg down, spot prices now appear to have confirmed a breakdown below the 61.8% Fibonacci retracement level of the recent rally from the psychological 1.3000 level or September’s monthly swing. Furthermore, the oscillators on the daily chart have just started to gain negative traction and suggest that the path of least resistance for the GBP/USD pair is to the downside. Traders are now looking to the US economic file – which includes weekly jobless claims and ISM services PMI – for near-term opportunities.