- The US inflation data will shape the Federal Reserve’s policy decision on Wednesday.
- US headline inflation for November is expected to remain flat.
- The interest rate differential between the UK and the US might widen in the coming year.
Traders shifted their attention to upcoming US inflation data and various central bank meetings, leading to a decline in the dollar that guided Tuesday’s bullish GBP/USD price analysis. Notably, the US inflation data will shape the Fed’s policy decision on Wednesday.
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Headline inflation for November will likely remain flat. At the same time, core inflation will likely hold steady at an annual rate of 4%—well above the Fed’s 2% target. The dollar had been sliding since October’s soft US inflation report. However, it stabilized following positive job data released on Friday.
Meanwhile, the pound strengthened against the dollar on Monday as investors prepared for a busy week of data releases and central bank meetings, including Thursday’s Bank of England policy meeting.
Most market participants anticipate no change to the current bank rate, which is at a 15-year high of 5.25%. As a result, the focus has shifted to when the BoE might cut the Bank Rate.
Stuart Cole, the chief macroeconomist at Equiti Capital, attributed Monday’s rise in the pound in part to the underlying expectation that the interest rate differential between the UK and the US will widen in the coming year.
Furthermore, the UK will release GDP data on Wednesday for insights into the country’s economic state.
On Monday, Make UK, a manufacturing trade body, reported that Britain’s struggling factories show signs of recovery. This is due to the long-awaited restocking and increased export orders, offering potential support to the sector in the challenging year ahead.
GBP/USD key events today
- US Core CPI month-on-month
- US CPI month-on-month
- US CPI year-on-year
GBP/USD technical price analysis: Bears return as price meets 30-SMA resistance
After a strong bullish trend, sentiment has shifted to bearish for GBP/USD. The price is currently making new lows below the 30-SMA. At the same time, the RSI is respecting the pivotal 50 level and staying below in bearish territory.
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However, the new bearish move has paused at a support zone comprising the 0.382 fib retracement and 1.2501 support levels. This has triggered a rebound to the 30-SMA resistance. Given the bearish bias, the price will likely respect the 30-SMA resistance and bounce lower. Meanwhile, a break below the 1.2501 support would allow the price to retest the 1.2401 support level.
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Saqib Iqbal
