- GBP/USD gained 0.2% and extended into a two-day win run on Tuesday.
- Cable markets are coiling into the midrange as the Fed and BoE race to make rate calls.
- UK CPI update on Wednesday serves as a preview of BoE rate call on Thursday.
GBP/USD stretched into a two-day winning streak on Tuesday, gaining one-fifth of one percent and recapturing the 1.2700 handle, but only just. Cable is paring away last week’s losses to recover into a near-term middle ground as Pound Sterling traders brace for a hefty end-of-year docket that includes rate calls from the Federal Reserve (Fed) and the Bank of England (BoE), as well as one last update on UK Consumer Price Index (CPI) inflation.
US Retail Sales figures lurched higher to 0.7% MoM on Tuesday, stoking some mild concern among investors that maybe the Fed doesn’t need to pursue an aggressive rate-cutting strategy after all, especially when counting a recent uptick in inflation metrics. Despite this, markets are still broadly pricing in a third straight rate cut from the Fed on Wednesday, with 95% odds favoring a 25 bps rate trim according to the CME’s FedWatch Tool.
UK CPI inflation is expected to chill to a sedate 0.1% MoM in November after October’s upswing of 0.6%. However, core inflation is proving to be sticky, with core CPI inflation in November expected to clock in at 3.6% compared to the previous period’s 3.3%. The BoE will follow up Wednesday’s CPI print with its last rate call of 2024 on Thursday. The BoE is broadly forecast to vote eight-to-one to keep its main reference rate on hold to close out the year.
GBP/USD price forecast
GBP/USD has spun out a rough defensive circle on daily candlesticks, with the pair churning into a midrange baked into the 1.2700 handle as Cable traders grapple with a sluggish zone on the low side of the 200-day Exponential Moving Average (EMA) near 1.2820.
The pair has priced in a large technical floor at November’s lows at the 1.2500 price level, but 1.2600 is shaping up to be an attractive downside target for bears if markets fail to fully pivot into a risk-on stance and drive the pair back into bull country above the 50-day EMA at 1.2800.
GBP/USD daily chart
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD flirta with YTD lows below 0.6350 amid pre-Fed market caution
AUD/USD ttrades in the red, flirting with YTD lows below 0.6350 in the Asian session on Wednesday. A cautious market mood and a pause in the US Dollar decline weigh negatively on the pair ahead of the Federal Reserve’s monetary policy announcement.
USD/JPY holds the bounce toward 154.00, Fed and BoJ on tap
USD/JPY is holding the bounce toward 154.00 in Wednesday's Asian trading. The pair finds demand due to a renewed US Dollar uptick and fading hopes of a BoJ rate hike on Thursday. The further recovery could be limited as traders remain wary ahead of the Fed verdict.
Gold price recovers above $2,650 in the lead-up to the Fed showdown
Gold price is recovering above $2,650 in Wednesday's Asian trading even as the US Dollar holds its bounce amid a risk-off market environment. Traders stay cautious in the run-up to the Fed event risk, which could significantly affect the value of the US Dollar and Gold price.
Ripple's XRP struggles near $2.58 resistance as investors realize $1.5 billion in profits
Ripple is up 3% on Wednesday after witnessing significant profit-taking among its investors following the launch of the RLUSD stablecoin. Whales have soaked up the selling pressure from profit-takers as XRP struggles near the $2.58 resistance level.
DJIA ends Tuesday in the red, sheds roughly 270 points
The Dow Jones Industrial Average shed another 360 points at its lowest on Tuesday as losses accumulate in the key index and begin to gather speed. The S&P 500 and the Nasdaq also closed in the red.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.