- The Pound Sterling holds steady around 1.2750 against the US Dollar as markets await November's US inflation data.
- Analysts anticipate a 25-bps rate cut from the Federal Reserve following the December 18 policy meeting.
- Attention shifts to the UK monthly GDP figures for insights into the state of the British economy.
The Pound Sterling (GBP) trades within a narrow range around 1.2750 against the US Dollar (USD) during Wednesday’s London session, as investors remain cautious ahead of the US Consumer Price Index (CPI) release for November, scheduled for 13:30 GMT.
The inflation report is anticipated to show a slight acceleration in the annual headline CPI to 2.7%, up from the previous reading of 2.6%. Core CPI, which excludes volatile food and energy prices, is expected to remain steady at 3.3%, with both month-on-month headline and core CPI forecasted to rise by 0.3%.
The inflation data is unlikely to significantly alter Federal Reserve (Fed) interest rate expectations for the December 18 policy meeting unless there are notable surprises in the figures.
A recent Reuters poll indicates that 90% of economists expect a 25-basis point (bps) rate cut next week. The poll also suggests that a majority expect the Fed to halt its rate-cutting cycle starting from the first meeting of 2025, assuming inflationary pressures from policies like higher import tariffs and lower taxes under US President-elect Donald Trump.
Daily Digest Market Movers: Pound Sterling Eyes UK Monthly GDP and Factory Data
- Similar to the US Dollar, the Pound Sterling is struggling to find direction against other major currencies due to a light economic calendar in the United Kingdom (UK). As a result, the British currency is likely to be influenced by market expectations ahead of the Bank of England’s (BoE) policy meeting on December 19.
- Traders anticipate that the BoE will keep interest rates unchanged at 4.75% next week as inflationary pressures persist. However, employment data for the three months ending in October, along with the November Consumer Price Index (CPI), will be key indicators that could impact BoE rate expectations.
- Growing concerns about the UK labor market could lead BoE officials to adopt a more dovish tone in their future interest rate guidance. A recent survey by the BoE’s Decision Maker Panel (DMP) revealed that one-year forward employment growth expectations have fallen to their lowest levels in four years.
- Investors will also be focusing on the UK monthly Gross Domestic Product (GDP) and Industrial and Manufacturing Production data for October later this week. Economists forecast a rebound in both factory output and GDP following a decline in September, which will provide insights into the current state of the UK economy.
Technical Analysis: Pound Sterling Remains Range-Bound Above 20-Day EMA
The Pound Sterling continues to struggle near the key resistance level of 1.2800 against the US Dollar. The GBP/USD pair holds just above the 20-day Exponential Moving Average (EMA) at around 1.2720.
The 14-day Relative Strength Index (RSI) fluctuates between 40.00 and 60.00, indicating a sideways market trend.
On the downside, the pair is expected to find support near an upward-sloping trendline around 1.2500, which extends from the October 2023 low near 1.2035. To the upside, the 200-day EMA at 1.2830 will act as a key resistance level.
