The Pound Sterling has witnessed a volatile move, briefly dropping after Bank of England (BoE) Governor Andrew Bailey predicted four interest-rate cuts in 2025. Bailey anticipates that the disinflation process will be firmly established, leading to this projection.
Traders are currently of the view that the BoE will maintain interest rates at 4.75% during this month’s meeting. Meanwhile, investors are also keeping a watchful eye on a series of US economic data and a speech by Federal Reserve Chair Jerome Powell.
On Wednesday, the Pound Sterling (GBP) relinquished some of its gains against other currencies following Bailey’s forecast in an interview with the Financial Times (FT). Bailey reaffirmed that interest rates should be lowered gradually and underlined the necessity to further reduce inflation, despite the “disinflation process being well underway.” When queried about the potential impact of tariffs proposed by US President-elect Donald Trump on UK inflation, Bailey stated that such effects “are not straightforward to predict.” Bailey did not provide any indication regarding the likely interest rate action in the upcoming December 19 monetary policy meeting. However, traders expect the BoE to hold rates steady at 4.75%, a sentiment driven by concerns that UK inflation may remain stubborn. The UK’s October inflation report indicated that the annual core Consumer Price Index (CPI), which excludes volatile items, rose to 3.3%, and service inflation climbed to 5%. Service sector inflation is a key metric closely monitored by BoE officials when formulating interest rate policies.
In London trading hours on Wednesday, the Pound Sterling edged lower against the US Dollar (USD) after encountering selling pressure near 1.2700. The GBP/USD pair has been exhibiting some erratic swings as the US Dollar strengthened.
Investors will be closely observing the US Nonfarm Payrolls (NFP) data on Friday. The Federal Reserve (Fed) initiated a policy-easing cycle in September due to concerns about deteriorating labor demand, while remaining confident that inflation is on a sustainable path towards the bank’s 2% target.
During Wednesday’s session, investors will focus on Fed Chair Jerome Powell’s speech at the New York Times DealBook Summit for any new insights on interest rates. According to the CME FedWatch tool, there is a 74% probability that the Fed will cut interest rates by 25 basis points (bps) to 4.25%-4.50%, with the remaining likelihood favoring no change at the current levels.
On the economic front, investors will also consider the US ADP Employment Change and the ISM Services Purchasing Managers’ Index (PMI) data for November. Economists predict that the US private sector added 150K jobs in November, a significant decrease from the 233K jobs added in October. In the same period, the Services PMI is estimated to have grown at a slower pace, reaching 55.5 from the previous reading of 56.0. A figure above 50.0 indicates an expansion in economic activity.
From a technical analysis perspective, the Pound Sterling faced selling pressure near the 20-day Exponential Moving Average (EMA) around 1.2710. The GBP/USD pair could potentially decline further as its outlook remains bearish, with all short-to-long-term EMAs sloping downwards. The 14-day Relative Strength Index (RSI) has rebounded after reaching oversold territory. Nevertheless, the overall downward bias persists. Looking at support levels, the pair is expected to find some support near the upward-sloping trendline around 1.2500, which was drawn from the March 2023 low near 1.1800. On the upside, the 200-day Exponential Moving Average (EMA) around 1.2830 will serve as a significant resistance level.
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