Daily Price Outlook
Despite the bearish trend in the US dollar, the GBP/USD currency pair continued its downward trajectory, reaching around 1.2720 on Wednesday. However, this decline can be attributed to the cautious sentiment prevailing ahead of a series of economic data releases from the United Kingdom (UK) on the same day. Notably, the UK Consumer Price Index (CPI), Producer Price Index (PPI), and Retail Price Index for November are all set to be unveiled.
It should be noted that the monthly consumer inflation is anticipated to grow by 0.01%, a slight increase from the flat 0.0% recorded previously. However, the year-on-year report may indicate a moderation, with an expected ease to 4.4% compared to the previous reading of 4.6%.
BoE Policy and Rate Cut Anticipation Impact on GBP/USD Pair
It's worth noting that the Bank of England (BoE) recently decided to keep the policy rate steady at 5.25%, its highest in 15 years, during the December meeting. Despite a gloomy economic outlook and more relaxed job market conditions, market experts anticipate four upcoming rate cuts, beginning in June 2024. This expected path suggests a potential drop in the key rate from 5.25% to around 4.25% by the end of the next year.
Deputy Governor Sarah Breeden emphasized the importance of maintaining restrictive policy levels to control inflation pressures. She mentioned that while these aren't predictions, a high inflation scenario would be more costly. This aligns with Governor Andrew Bailey's stance on the need to keep policy restrictive.
Looking ahead, the UK is set to release Consumer Price Index (CPI), Producer Price Index (PPI), and Retail Price Index for November. The monthly consumer inflation is expected to grow slightly, but the year-on-year report might show a decrease from the previous reading of 4.6% to 4.4%.
Therefore, the BoE's decision to maintain a high policy rate and the anticipation of future cuts may weigh on the GBP/USD pair.
US Dollar Recovery and Housing Data Impact on GBP/USD Pair
Moreover, the US Dollar Index (DXY) experienced a decline but is currently trading higher around 102.20 as it is making an effort to recover from recent losses amid a more cautious stance from the US Federal Reserve (Fed). The Fed's signals suggest a potential easing of monetary policy in early 2024.
On the economic front, US Housing Starts performed better than expected at 1.56 million, beating the consensus of 1.36 million. However, Building Permits dipped slightly to 1.46 million, just below the forecast of 1.47 million. Investors are keeping an eye on Wednesday's data, including Existing Home Sales Change and the CB Consumer Confidence survey.
Therefore, the US Dollar's recovery will likely pose downward pressure on the GBP/USD pair, impacting its strength. Meanwhile, the positive US housing data could provide support for the Dollar, potentially leading to a weaker GBP/USD pair.
GBP/USD - Technical Analysis
The GBP/USD pair on December 20 is illustrating the intricate dance between the British pound and the US dollar in the forex market. Currently, it stands at 1.27202, experiencing a slight decrease of 0.09%. This movement places the pair slightly above a significant pivot point at 1.2523. The pair faces immediate resistance at 1.2657, with subsequent levels at 1.2820 and 1.2954. On the flip side, support is found at 1.2359, followed by 1.2225 and 1.2086.
In the realm of technical indicators, the Relative Strength Index (RSI) is positioned at 58, indicating a moderately bullish sentiment, yet far from the overbought threshold. The Moving Average Convergence Divergence (MACD) shows a subtle positive value of 0.000080 against a signal of 0.002090, suggesting a potential for upward momentum, although the movement is not pronounced.
The 50-Day Exponential Moving Average (EMA) at 1.2710 is a crucial indicator, as the current price hovers around this mark. This positioning hints at a short-term bullish trend. From a chart pattern perspective, the GBP/USD pair appears to be maintaining a bullish stance above the 1.2710 level.
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