The Pound Sterling is showing a lackluster performance against the US Dollar, hovering in a narrow range close to 1.2750 as the market braces for the release of the US inflation data for November.
In the Wednesday European session, the GBP/USD exchange rate is in a consolidation phase. Investors seem to be adopting a wait-and-see approach prior to the publication of the US Consumer Price Index figures at 13:30 GMT. The anticipated annual headline CPI is expected to climb to 2.7% from 2.6%, while the core CPI, excluding volatile food and energy prices, is projected to remain steady at 3.3%. The month-on-month headline and core CPI are both forecasted to increase by 0.3%.
Unless there are significant deviations from these expectations, the inflation data is not likely to have a major impact on the Federal Reserve’s interest rate outlook for the December 18 policy meeting. According to a recent Reuters poll, a vast majority of 90% of economists predict a 25-basis point cut in interest rates next week. The poll also indicates that most economists expect the Fed to halt its policy easing from January 2025, considering the potential inflationary effects of the policies of US President-elect Donald Trump, such as higher import tariffs and lower taxes.
Similar to the US Dollar, the Pound Sterling is finding it difficult to establish a clear direction against other major currencies due to a relatively light UK economic calendar. The British currency’s future movements will be shaped by market expectations regarding the Bank of England’s likely interest rate actions in the December 19 policy meeting. Traders anticipate that the BoE will maintain the interest rate at 4.75% next week, given the persistent price pressures. Ahead of the BoE’s decision, employment data for the three months ending in October and the November CPI data will be released, which could potentially alter the interest rate expectations.
Meanwhile, mounting concerns over the strength of the UK labor market might prompt BoE officials to issue dovish interest rate guidance. A recent survey by the BoE Decision Maker Panel revealed that one-year forward employment growth expectations have dropped to four-year lows. Later this week, investors will turn their attention to the UK monthly Gross Domestic Product, Industrial, and Manufacturing Production data for October. These figures will provide insights into the current state of the UK economy. Economists expect the factory and GDP data to have rebounded after a decline in September.
From a technical analysis perspective, the Pound Sterling is attempting to regain the crucial resistance level of 1.2800 against the US Dollar. The GBP/USD pair is trading slightly above the 20-day Exponential Moving Average at around 1.2720. The 14-day Relative Strength Index is fluctuating within the 40.00 – 60.00 range, indicating a sideways trend. Looking downward, the pair is likely to find support near the upward-sloping trendline around 1.2500, which was established from the October 2023 low of approximately 1.2035. On the upside, the 200-day EMA near 1.2830 will serve as a significant resistance level.
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