City Index analyst Fawad Razaqzada said that GBP/USD may fall to 1.25.

From a technical perspective, Razaqzada believes that the GBP/USD exchange rate is showing a downward trend. The resistance range of 1.2665-1.2731 remains stable, and it is necessary to break through this range in order for the market to turn bullish.

Razaqzada stated that the support level is expected to be in the 1.2580-1.2600 range, which intersects with the trend line since October 2023. If it falls below this trend line, the exchange rate may further drop to the 1.2500 level.

At the same time, RSI is approaching oversold levels of 30. Although this does not necessarily mean that the exchange rate will rebound, it will increase the possibility of a rebound.

Razaqzada believes that currently, the trend of the pound against the US dollar is still more pegged to the US dollar rather than the pound. Given the overall bullish trend of the US dollar, even if there seem to be short-term signs of a rebound in the GBP/USD exchange rate under oversold conditions, there is still limited room for a significant increase in the short term.

However, the rise of the US dollar has remained largely unaffected, as Ukraine's recent use of long-range missiles within Russian territory has caused market volatility. However, after the market was impacted by Ukraine's use of long-range missiles provided by the United States to attack Russian territory in recent days, the rise of the US dollar was largely unaffected.

Nevertheless, the overall performance of the foreign exchange market has been relatively restrained, with the USD/JPY rising and recovering against other currencies. The market seems to maintain a cautiously optimistic attitude, but if the conflict escalates further, it may break this sentiment, especially with a significant impact on the euro, followed by the pound.

After the release of the UK Consumer Price Index, the October data for the pound exceeded expectations, rising from 1.7% to 2.3%, higher than the expected year-on-year increase of 2.2%. The core CPI is even higher, at 3.3%. Due to the higher than expected CPI data for October in the UK, the pound has become the focus of market attention; The year-on-year data increased from 1.7% to 2.3%, exceeding the expected 2.2%. The core CPI performance is even stronger, reaching 3.3%.

Traders chose to sell after the initial rise of the pound against the dollar, as they believed that the Bank of England was more concerned about service sector inflation, which only slightly increased to 5.0% year-on-year, still in line with the central bank's expectations.

However, based on the latest CPI data, it is difficult to expect the Bank of England to take action again in December. By early 2025 (possibly in February), the central bank may further relax policies and cut interest rates due to economic needs.

Overall, Razaqzada believes that given the current economic situation, market expectations for UK interest rates are too hawkish. The possibility of the pound falling to 1.25 is increasing.

Daily chart of GBP/USD