GBP/USD Price Analysis – Dec 18, 2023

Daily Price Outlook

The GBP/USD currency pair extended its winning streak and remained well-bid around above the 1.2690 level. However, the upticks in the currency pair was supported by the Bank of England's (BoE) hawkish outlook, which tend to underpin GBP currency and contributes to the GBP/USD pair gains. Additionally, the upward rally could be attributed to the downtick in the US Dollar. Notably, the Federal Reserve (Fed) signaled an end to its monetary policy tightening cycle last Wednesday, with the "dot plot" indicating at least three 25 basis points (bps) rate cuts in 2024. This dovish stance has undermined the US Dollar (USD) and contributed to the gains in the GBP/USD pair.

BoE's Hawkish Stance and Positive UK Data Propel GBP, Favorable Conditions for GBP/USD Pair

It's important to note that the British Pound (GBP) is getting support from the Bank of England's (BoE) hawkish stance. They're indicating that they plan to keep monetary policy restrictive because key indicators of UK inflation are still high. Additionally, the recent flash UK PMIs released on Friday suggest that the economy is gaining momentum towards the end of the year. This is good news, as it helps the UK avoid a recession in the fourth quarter. The Pound is also benefiting from a relatively quiet US Dollar, creating a bullish environment for the GBP/USD pair.

Fed's Mixed Signals Impact USD and Boost GBP/USD Pair

Furthermore, the Federal Reserve (Fed) hinted that they're done tightening their monetary policy and even mentioned planning three rate cuts in 2024. However, a couple of important Fed officials disagreed, suggesting early rate cuts might not happen. This led to a short-covering rally for the US Dollar (USD) on Friday, bouncing back from its lowest point since July 31. But, despite this recovery, the USD didn't gain much ground due to the overall dovish stance of the Fed and the positive market sentiment, which tends to weaken the safe-haven appeal of the dollar and contributes to the GBP/USD pair gains.

GBP/USD - Technical Analysis

The GBP/USD pair, often seen as a barometer of global financial stability, has exhibited a modest upward trend in recent trading, registering a 0.14% increase to 1.26940. This movement, though slight, is significant in the context of broader market sentiments and geopolitical dynamics.

Currently, the pivot point for GBP/USD is identified at $1.2524, serving as a key indicator for future price movements. Immediate resistance levels are noted at $1.2660, $1.2816, and $1.2952, which could pose challenges to the pair's upward momentum. Conversely, support levels are established at $1.2364, $1.2228, and $1.2086, offering potential areas of rebound in case of a downward price movement.

The technical indicators for GBP/USD reveal a cautiously optimistic outlook. The Relative Strength Index (RSI) stands at 55, which leans towards a bullish sentiment but is not overwhelmingly strong. An RSI above 50 generally suggests a bullish market sentiment. The Moving Average Convergence Divergence (MACD) presents a more nuanced view, with a value of -0.00035 against a signal of 0.00334, hinting at potential downward pressure.

The 50-Day Exponential Moving Average (EMA) is currently at $1.2701, just above the current price, which could suggest a short-term bullish trend if the price remains above this level. However, the close proximity of the price to the 50 EMA warrants close observation for any potential shifts in trend.

In summary, the overall trend for GBP/USD appears bullish above the pivot point of $1.2524. The short-term forecast anticipates the pair to potentially test higher resistance levels in the coming days. However, given the mixed signals from the RSI and MACD, along with the close proximity to the 50 EMA, investors should remain vigilant for any sudden changes in market sentiment or price movements.

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