GBP/USD Price Analysis – Nov 20, 2024
Daily Price Outlook
During the European trading session, the GBP/USD currency pair struggled to maintain its bullish momentum and dropped to around the 1.2663 level, hitting an intraday low of 1.2649. This decline occurred despite stronger-than-expected inflation data from the UK.
However, the GBP/USD pair surrendered its gains as the US Dollar regained strength. The US Dollar Index (DXY) surged to approximately 106.50, driven by expectations that the Federal Reserve will implement fewer interest rate cuts in 2025.
BoE's Inflation Concerns Spark Shift in Rate Cut Expectations for December
On the data front, the Consumer Price Index (CPI) revealed that annual inflation jumped to 2.3%, higher than the 2.2% forecast and the previous month's 1.7%. Compared to September, inflation rose by 0.6%, exceeding the expected 0.5% increase.
Core CPI, which excludes food, energy, oil, and tobacco, grew by 3.3%, higher than the previous 3.2% and above the 3.1% expected. Services inflation, which the Bank of England (BoE) closely monitors, also rose to 5% from 4.9%.
As a result, traders have started to rethink expectations for future interest rate cuts by the BoE. Just a day earlier, markets had priced in an 80% chance that the BoE would cut rates by 25 basis points in December.
Several BoE policymakers, including Governor Andrew Bailey, warned that inflation pressures are still strong. Bailey said that services inflation is too high to reach the BoE's target, and Catherine Mann, a BoE member known for her hawkish stance, pointed out that the BoE may struggle to bring inflation down to 2% anytime soon. These comments suggest the BoE might delay rate cuts if inflation remains stubborn.
Impact of Stronger US Dollar and Diminished Fed Rate Cut Expectations on GBP/USD
On the US front, the GBP/USD pair lost its gains as the US Dollar strengthened sharply, with the US Dollar Index (DXY) rising to around 106.50. This increase came from expectations that the Federal Reserve (Fed) will take a slower approach to interest rate cuts in 2025.
With President-elect Donald Trump about to take office, markets believe his policies, such as higher import tariffs and lower taxes, will boost the US economy, raising inflation and encouraging domestic demand and employment. This is causing investors to adjust their expectations for future Fed rate cuts.
As a result, the chances of a 25 basis point rate cut by the Fed in December have dropped from over 82% last week to 59%, according to the CME FedWatch tool. This shift in expectations followed remarks from Fed Chair Jerome Powell, who said the economy isn’t showing signs that the central bank needs to rush into rate cuts.
Looking ahead, investors will focus on the flash S&P Global Purchasing Managers' Index (PMI) data for November, which is due on Friday. The data is expected to show growth in the US private sector, while activity in the UK is expected to remain steady.
Therefore, the strengthening US Dollar and reduced expectations for Fed rate cuts in December have put downward pressure on the GBP/USD pair, leading to a loss of gains and a pullback from higher levels.
GBP/USD – Technical Analysis
GBP/USD is trading at $1.27004, up 0.18%, showing modest bullish momentum as it hovers near the pivot point at $1.27205. Immediate resistance lies at $1.27565, followed by $1.27926, marking key levels for potential upward continuation.
The 50-day EMA at $1.26601 acts as a critical support zone, closely aligned with the immediate support level at $1.26714. Further downside support levels to watch are $1.26272 and $1.25630.
The Relative Strength Index (RSI) stands at 61, suggesting that bullish momentum is gaining traction but remains below overbought conditions. The pair is trading above the 50-day EMA, reinforcing the short-term bullish bias. However, failure to sustain above $1.27205 could push prices back toward support zones, risking a shift in sentiment.
Traders are advised to consider buying above $1.26814, targeting $1.27281 with a stop loss at $1.26592. A sustained break above $1.27565 could confirm further gains, while a move below $1.26714 would test the pair’s resilience.
GBP/USD maintains a bullish bias above $1.27205, targeting $1.27565. A break above resistance could signal further gains, while failure to hold above $1.26714 may shift the trend to bearish.
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