GBP/USD Price Analysis – Dec 18, 2024
Daily Price Outlook
During the European trading session on Wednesday, the GBP/USD currency pair continued its bearish trend, struggling to maintain any upward momentum.
The pair hovered around the 1.2689 level and hit an intra-day low of 1.2679. This decline can largely be attributed to the release of the UK Consumer Price Index (CPI) data for November, which showed that inflation pressures had risen as expected. This data kept the Pound under pressure as traders assessed the UK’s inflation outlook.
Meanwhile, the US Dollar remained stable as market participants awaited the Federal Reserve’s upcoming monetary policy announcement.
Meanwhile, the expectations for a 25-basis point interest rate cut could cap gains in the US dollar and may help GBP/USD pair to limit its losses.
Impact of Federal Reserve's Rate Cut and Inflation Concerns on GBP/USD
On the US front, the US Dollar has been gaining momentum as markets focus on the Federal Reserve's upcoming monetary policy announcement, scheduled for 19:00 GMT.
Traders are anticipating a 25-basis point interest rate cut, which would mark the third consecutive reduction by the Fed.
Investors are closely monitoring the Federal Open Market Committee's (FOMC) Economic Projections and the dot plot, which provides the Fed’s outlook on interest rates for the coming years.
Most economists expect the Fed to slow down its rate cuts in 2025. According to a recent Bloomberg survey, while the Fed may reduce rates three times next year, inflation is likely to remain above the Fed's target.
Additionally, economists are growing more concerned about inflation risks due to the policies of President-elect Donald Trump, including higher import tariffs, tax cuts, and potential mass deportations. These factors could create more uncertainty in the economy and financial markets.
Impact of UK Inflation Data and Bank of England's Rate Outlook on GBP/USD
On the GBP front, the Pound Sterling showed some volatility on Wednesday after the release of the UK Consumer Price Index (CPI) data for November.
The report revealed that inflation rose as expected, with the annual inflation rate increasing to 2.6% from 2.3% in October. Monthly inflation rose by 0.1%, which was lower than the previous month's 0.6%.
The core CPI, which excludes items like food and energy, grew by 3.5%, slightly above the previous month's 3.3%, but below the expected 3.6%. Services inflation, an important indicator for the Bank of England (BoE), rose by 5%.
This rise in inflation has led many to expect the Bank of England (BoE) to keep interest rates at 4.75% in their upcoming meeting, with most members voting to keep rates unchanged.
However, one member, Swati Dhingra, is expected to call for a 25 basis point rate cut. Investors are closely watching BoE Governor Andrew Bailey’s press conference to see if the central bank plans to ease its policies further in 2025.
Additionally, retail sales data for November, set to be released on Friday, will also be important for understanding the UK's economic outlook.
Therefore, the rise in inflation and expectations for the Bank of England to keep rates unchanged may keep the GBP/USD pair under pressure. If the BoE signals further policy easing in 2025, it could weigh on the Pound, limiting upside potential.
The GBP/USD pair is trading at $1.27014, down 0.05%, reflecting a cautious sentiment as the pair remains near a key support level.
The pivot point at $1.27860 acts as a critical resistance, with the pair trading just below the 50 EMA at $1.27176, reinforcing a short-term bearish bias.
Immediate resistance lies at $1.28351, followed by $1.28742, levels that need to be breached to signal a shift in sentiment.
On the downside, the pair finds immediate support at $1.26666, with further levels at $1.26070 and $1.25636 providing key targets for bearish momentum. The RSI at 51 signals neutrality, suggesting limited immediate momentum but leaving room for directional movement.
Traders are positioning for a Sell Limit at $1.27217, targeting $1.26588, with a stop loss at $1.27678 to manage upside risks.
For now, GBP/USD remains rangebound, with a bearish outlook prevailing unless the price reclaims the pivot point and surpasses the 50 EMA.
A failure to hold support at $1.26666 could open the door for further declines toward $1.26070.
The pair’s direction hinges on a break above resistance or below key support, with the overall sentiment skewed slightly bearish.
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