GBP/USD plunges below 1.1200 as Fed dovish pivot hopes abate

• GBP/USD fails to hold to gains above 1.1300 and tumbles below 1.1200.
• Fed’s Kashkari said that the Fed has “ways away from pausing rates,” killing Fed pivot hopes.
• US jobless claims jumped, but the focus shifted to Friday’s Nonfarm Payrolls.

The GBP/USD extends its losses to two-consecutive days after snapping six days of gains, which bolstered the major towards the 1.1500 area. Sentiment deterioration amidst a possible Fed pivot waning, as Fed policymakers insist on higher rates, alongside good US data, being bad data, keeps the GBP/USD heavy.

Therefore, the greenback is appreciating against most G8 currencies. At the time of writing, the GBP/USD is trading at 1.1180 below its opening price by almost 1.30% after hitting a daily high of 1.1383.

GBP/USD drops due to further Fed hawkish commentary

Early Thursday, the Minnesota Fed President Neil Kashkari crossed newswires. He said that the Fed is “quite a ways away from pausing rates,” adding that the Fed has “more work to do” to tackle inflation down. He echoed Wednesday’s comments of San Francisco Fed Mary Daly and Atlanta’s Fed Bostic, both not expecting to cut rates through 2023, contrary to what money market futures expect.

Data-wise, the US Department of Labor reported that unemployment claims increased, a positive sign for the Federal Reserve. Initial Jobless Claims for the week ending on October 1 rose by 219K, higher than the 203K estimated by analysts. The four-week moving average, which smooths volatile week-to-week results, was almost unchanged at 206.5K.

On the UK’s front, businesses inflation expectations rose to 9.5% in September, from 8.4% in August, according to a Bank of England Survey on Thursday. Even though the Bank of England is expected to keep rates higher, Wells Fargo analysts expect further British pound weakness.

“We expect further significant weakness in the pound. With the UK still seen falling into recession and CPI inflation expected to peak lower than previously, we expect BoE rate hikes to fall well short of the Fed.”

Traders should be aware that EU and UK officials are re-engaging in Brexit negotiations regarding the Northern Ireland Protocol, as the Irish Foreign Minister Simon Coveney said on Wednesday.

What to watch

The UK calendar will feature Halifax House Prices. On the US front, further Fed speaking for the remainder of the day, alongside Friday’s Nonfarm Payrolls and the Unemployment Rate.

GBP/USD Technical Analysis

The GBP/USD tumbled below the 20-day EMA, extending its losses beyond the 61.8% Fibonacci retracement at 1.1210, exposing the 50% Fibonacci retracement at 1.1047. Traders should note that the Relative Strength Index (RSI) is back below the 50-mid line aiming downwards and recently crossed below its 7-day RSI’s SMA, showing that sellers are gathering momentum.

Therefore, the GBP/USD first support would be the 1.1100 figure, followed by the 50% Fibonacci level at 1.1047, ahead of the 38.2% Fibonacci retracement at 1.0884.