The GBP/USD currency pair experienced a rebound, inching towards 1.2540 in the wake of the release of US inflation data and the Bank of England’s (BoE) monetary policy determination on Thursday. This upward movement, however, was tempered by various factors, including the BoE’s stance on rates and weaker-than-hoped UK economic data.
The US inflation landscape, as depicted by the November Personal Consumption Expenditure (PCE) figures, showed a softening of inflationary forces. The monthly Headline PCE registered at 0.1%, a dip from the preceding 0.2%, while the yearly figure edged up marginally to 2.4%, just surpassing the prior 2.3% but falling short of the 2.5% forecast. The Core PCE monthly measure also declined to 0.1% from 0.3%, missing the 0.2% estimate, and the yearly reading held steady at 2.8%, beneath the expected 2.9%.
These figures led the CME FedWatch Tool to project a 90% probability of the Federal Reserve maintaining its current policy rate at the upcoming January 29, 2025 meeting, with only a 10% chance of a 25 basis point rate cut. Concurrently, the US 10-year Treasury yield settled at 4.50%, down from its Thursday peak of 4.60%.
Across the Atlantic, the BoE opted to keep its key borrowing rate steady at 4.75%, a widely anticipated move. Nevertheless, internal divisions within the central bank were evident, as three policymakers voted for a rate cut, despite the acceleration in inflation over the past three months. Governor Andrew Bailey highlighted the prevailing economic uncertainty, stating that the bank could not commit to the timing or magnitude of potential rate cuts in 2025. In response, market participants factored in a 53 basis points (bps) reduction in the BoE’s interest rates for the coming year.
On the domestic front, the UK’s Retail Sales for November failed to meet expectations. Monthly sales eked out a 0.2% increase, shy of the 0.5% forecast, albeit recovering from the 0.7% slump in October. Year-on-year growth was a meager 0.5%, missing the 0.8% projection and representing a significant comedown from the previously reported 2%.
From a technical vantage point, the GBP/USD pair managed to recover to 1.2540. However, technical indicators still linger in the negative zone, albeit showing some signs of improvement. The Relative Strength Index (RSI) has climbed but persists in signaling bearish momentum, and the Moving Average Convergence Divergence (MACD) histogram remains below the zero line, indicative of ongoing selling pressure. Immediate support is pegged at 1.2500, and a breach of this level could potentially expose 1.2460. On the upside, resistance is identified at 1.2560, and a sustained move above this threshold is required to mount a challenge against the next significant barrier at 1.2600.
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