- The Pound Sterling remains firm near Tuesday’s high of 1.2450 against the US Dollar ahead of January’s US CPI data.
- Fed Chair Powell emphasized that the central bank is in no hurry to cut interest rates.
- The UK economy is projected to have contracted by 0.1% in the final quarter of 2024.
The Pound Sterling (GBP) remains firm near 1.2450 against the US Dollar (USD) during Wednesday’s European session, as traders await the release of the United States (US) Consumer Price Index (CPI) data for January at 13:30 GMT.
Economists anticipate the annual core CPI—excluding volatile food and energy prices—to ease to 3.1% from 3.2% in December, while the headline CPI is projected to remain steady at 2.9%. On a monthly basis, both headline and core CPI are expected to rise by 0.3%. Market participants will closely watch the inflation data, which will shape expectations regarding the Federal Reserve’s (Fed) interest rate policy and its timeline for potential cuts.
Fed Chair Jerome Powell, in his two-day testimony before Congress, reiterated that the Fed is in no rush to cut interest rates, citing robust economic growth and persistent inflationary pressures. Powell warned that easing monetary policy too quickly could slow inflation progress, reinforcing market speculation that rates will remain steady in the 4.25%-4.50% range for an extended period.
Ahead of the US inflation report, the US Dollar Index (DXY), which tracks the USD’s value against six major currencies, trades slightly higher near 108.00.
Market Movers: GBP Gains Despite Concerns Over UK Economic Outlook
- The Pound Sterling trades higher against its peers, yet uncertainty looms over the UK’s economic outlook. Bank of England (BoE) Monetary Policy Committee (MPC) member Catherine Mann has expressed concerns over weak demand conditions and the need for easier financial conditions.
- In an interview with the Financial Times (FT), Mann noted that UK demand conditions are weaker than expected. Last week, she voted for a 50 basis points (bps) rate cut, surprising markets, as the BoE had unanimously agreed to a 25 bps cut.
- Meanwhile, US President Donald Trump’s trade policies continue to keep markets on edge. Trump recently imposed a 25% tariff on steel and aluminum imports without exemptions and is expected to announce additional reciprocal tariffs, heightening global trade tensions.
- Looking ahead, traders will focus on UK’s Q4 and December GDP data, set for release on Thursday. The UK economy is expected to have contracted by 0.1% quarter-on-quarter, following a flat Q3 2024. On an annual basis, GDP is projected to have grown by 1.1%, accelerating from 0.9% in the previous quarter.
Technical Outlook: GBP/USD Holds Firm Near 1.2450 but Faces Resistance
The Pound Sterling trades close to Tuesday’s high of 1.2450 against the US Dollar, but the technical outlook remains bearish as the 50-day Exponential Moving Average (EMA) at 1.2484 poses a strong resistance barrier.
The 14-day Relative Strength Index (RSI) fluctuates between 40.00 and 60.00, signaling a sideways trend.
On the downside, key support levels are seen at 1.2100 (January 13 low) and 1.2050 (October 2023 low).
On the upside, a break above 1.2484 could push GBP/USD toward the December 30 high of 1.2607, acting as the next major resistance level.
