GBP/USD Price Analysis – Dec 09, 2024
Daily Price Outlook
During the European trading session, the GBP/USD currency pair continued its upward movement, gaining momentum around the 1.2778 level and reaching an intraday high of 1.2784.
This bullish trend can largely be attributed to a weakening US dollar, which lost strength as investors grew more confident that the Federal Reserve would likely cut interest rates during its December 18 meeting.
At the same time, the GBP/USD pair benefited from expectations that the Bank of England will adopt a slower pace of policy easing due to ongoing concerns about persistent inflation pressures.
Looking ahead, all eyes are on the upcoming US Consumer Price Index (CPI) data for November, set to be released on Wednesday. Analysts expect headline CPI inflation to edge up to 2.7% from the previous 2.6%.
In the meantime, the core CPI, which excludes volatile food and energy prices, is forecast to remain steady at 3.3%. Investors are hoping these numbers will provide more insight into the current inflation situation.
US Dollar Weakened by Growing Fed Rate Cut Expectations, Boosting GBP/USD
On the US front, the broad-based US dollar has been under pressure as market participants grow increasingly confident that the Federal Reserve (Fed) will cut interest rates in its meeting on December 18.
There’s an 83% chance that the Fed will lower its key borrowing rate by 25 basis points to 4.25%-4.50% next week, according to the CME FedWatch tool. This is up from 62% a week ago, signaling rising expectations for a rate cut.
However, the speculation about the Fed’s rate cut strengthened after the release of the US Nonfarm Payrolls (NFP) data for November. The report showed the economy added 227,000 jobs, beating the 200,000 forecast.
However, the unemployment rate also rose slightly to 4.2%, as expected. Additionally, average hourly earnings grew by 0.4% month-over-month and 4% year-over-year, both higher than estimates, suggesting continued inflation pressures.
Despite this strong data, Federal Reserve Governor Michelle Bowman indicated on Friday that she would prefer a cautious and gradual approach to cutting rates, as inflation remains high.
This comment contrasts with the growing market expectation for rate cuts and highlights the ongoing debate within the Fed about the best approach to tackle inflation while supporting the economy.
Therefore, the growing expectation of a Fed rate cut has supported the GBP/USD pair, as the US dollar weakens. Investors anticipate that the Fed's actions could make the dollar less attractive, boosting the British pound's value against the Greenback.
GBP Strengthened by BoE’s Gradual Policy Easing, but Weakened by Declining UK Labor Demand
On the GBP front, the British pound is generally strong against its major counterparts, except for some Asia-Pacific currencies, as the Bank of England (BoE) is expected to take a more gradual approach to easing its monetary policy. This is due to concerns that inflationary pressures remain persistent.
BoE's Monetary Policy Committee (MPC) member Megan Greene mentioned that the bank could reach its inflation target by the end of its three-year forecast period.
BoE Governor Andrew Bailey also stated that while there’s still work to do to bring inflation down to the 2% target, the disinflation process is progressing well.
Investors are keeping a close eye on the BoE's next steps, especially with the upcoming speech by Deputy Governor Dave Ramsden, scheduled for 13:00 GMT on Monday.
Ramsden has been one of the BoE policymakers who has leaned towards reducing interest rates, which could influence market sentiment on the pound. His comments may provide more clarity on the BoE's stance regarding future rate cuts or increases.
On the economic front, a recent survey by the Recruitment and Employment Confederation (REC) and KPMG showed a decline in demand for workers in the UK.
This came after the government raised Employer’s National Insurance Contributions (NIC) to 15%. The survey revealed that demand for staff fell to its lowest level since August 2020, highlighting ongoing concerns in the labor market.
Thus, the British pound remains strong against the US dollar, supported by the Bank of England's cautious approach to monetary policy easing. However, the decline in UK labor demand could weigh on the pound, limiting further upside against the US dollar.
GBP/USD – Technical Analysis
GBP/USD is trading at $1.27340, down 0.03%, as the pair remains range-bound near the pivot point of $1.27551. The 50-day EMA at $1.27437 reflects slight bearish pressure as the price hovers just below this level, signaling caution among traders.
Immediate resistance is noted at $1.27957, with subsequent levels at $1.28367, suggesting that a recovery above the pivot could open the door for further gains.
On the downside, immediate support lies at $1.27171, with additional safety levels at $1.26875 and $1.26595. A break below $1.27171 could indicate further selling pressure, potentially driving the pair toward the $1.26298 zone.
The RSI at 45 signals neutral momentum, leaning slightly bearish but not yet oversold, leaving room for either direction depending on market catalysts.
A sustained break above $1.27551 would reinforce bullish momentum, targeting $1.27957 as the first resistance. Conversely, failure to hold $1.27171 could shift the focus to the next support levels.
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