GBP/USD Price Analysis – Dec 27, 2023

Daily Price Outlook

Despite the bearish US dollar, the GBP/USD currency pair failed to stop its downward trend and dropped to the 1.2717 level. However, the reason for its decline could be attributed to deepening fears of a recession in the United Kingdom's economy. According to the latest estimates, the British economy contracted by 0.1% in the July-September period. According to the latest projections from the BoE, the economy is expected to remain stagnant in the last quarter of this year.

Meanwhile, the upbeat Retail Sales data for November, driven by robust sales at non-food retail stores, failed to give some relief to the Pound Sterling. Apart from this, the US dollar trades near a five-month low around 101.46 as a more-than-anticipated decline in the core Personal Consumption Expenditure price index (PCE) for November has prompted bets in favor of early rate cuts by the Fed. This was seen as one of the key factors that could help the GBP/USD pair limit its deeper losses.

Pound Sterling's Resilience Amid Economic Factors and Rate Cut Speculations

It is worth noting that the GBP was holding its ground against the US Dollar, thanks to easing price pressures in the US, sparking expectations of early rate cuts by the Federal Reserve in 2024. However, the Pound's resilience was fueled by positive Retail Sales data for November, driven by strong sales in non-food retail stores during Black Friday.

However, the upticks were short-lived as the GBP/USD pair lost momentum due to concerns about a UK recession. The UK Office for National Statistics revised its Q3 2023 economic contraction to 0.1%, contrary to earlier expectations of stagnation.

The Bank of England expects a slow Q4, and there's talk about possible interest rate cuts by 2024. Chancellor Jeremy Hunt suggests lowering rates to control inflation and boost growth. But, the Bank of England officials are careful and feel it's too soon for rate cuts, even though prices are dropping.

Barclays believes the Bank of England might cut rates in May, earlier than expected in August, because they're worried about a UK recession and the Chancellor's different approach to rate cuts for economic help.

Impact on GBP/USD Pair Amid Weaker US Dollar and Expected Fed Rate Cuts

Besides this, the market is expected to be quiet this shortened holiday week. The US Dollar Index (DXY) is around a five-month low at 101.46 because the core Personal Consumption Expenditure price index (PCE) for November dropped more than expected. This has led to predictions of early rate cuts by the Fed. The monthly US core PCE data only grew by 0.1%, missing the expected 0.2% growth, and the yearly inflation slowed to 3.2%, below the expected 3.3%.

Therefore, the weaker US Dollar, driven by lower-than-expected core PCE growth, could benefit the GBP/USD pair. With heightened expectations of early Fed rate cuts, the Pound may see strength against the US Dollar.

GBP/USD - Technical Analysis 

In the intricate financial tapestry of the forex market, the GBP/USD pair continues to be a focal point for traders. On December 27, this pair has shown a slight uptick, trading at 1.27297, marking a marginal increase of 0.05%. This subtle movement indicates the ongoing cautious sentiment in the currency market.

The GBP/USD pair's current pivot point is set at $1.2731, forming a critical juncture for future price movements. The pair faces immediate resistance levels at $1.2762, $1.2794, and $1.2832. Concurrently, support levels are firmly established at $1.2681, $1.2646, and $1.2613. These price points are crucial for traders as they navigate through the short-term fluctuations of this currency pair.

From a technical analysis standpoint, the Relative Strength Index (RSI) for GBP/USD is currently at 59, indicating a moderately bullish sentiment. This suggests that buyers have a slight edge over sellers in the market. Additionally, the pair is trading above its 50-Day Exponential Moving Average (EMA) of $1.2682, further confirming the short-term bullish trend. This positioning above the EMA suggests potential for continued upward movement in the pair.

In summary, the overall trend for GBP/USD appears to be bullish, especially above the 50 EMA mark. In the short term, it is anticipated that the pair may test its resistance levels. Traders considering entering the GBP/USD market might look at a buy limit of 1.2724, with a take-profit target of 1.2794 and a stop loss at 1.2678.

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