Pound Sterling performs broadly firm as BoE sets to leave rates steady next week

The Pound Sterling trades sideways but remains firm on the assumption that the BoE will keep interest rates steady on December 19.
Traders expect the BoE to cut interest rates at a slower pace when compared to other central banks in Europe and North America..
Markets fully price in that the Fed will cut interest rates by 25 bps on Wednesday.

The Pound Sterling (GBP) consolidates against its major peers on Thursday, but the British currency remains firm against its major counterparts due to expectations that the Bank of England (BoE) will follow a more gradual policy-easing cycle compared with other central banks in Europe and North America.

Inflation in the United Kingdom (UK) services sector remains high, allowing the BoE to remain in a slow lane towards interest rate cuts. BoE Monetary Policy Committee (MPC) external member Megan Greene warned in her latest commentary that she suspects the BoE’s inflation target “by the end of our forecast period, which is three years.”

Signs of more government expenditure and higher employer costs in Labour’s first budget have also escalated uncertainty over the inflation outlook. UK employers are expected to pass on the impact of higher employers’ contribution to National Insurance to consumers.

Market expectations that the BoE will cut interest rates at a moderate pace have also kept the Pound Sterling strong against the US Dollar this year, unlike other European currencies such as the Euro (EUR) and the Swiss Franc (CHF), which are down 4.9% and 5.5%, respectively.

For the BoE policy meeting announcement on December 19, traders see the central bank leaving interest rates unchanged at 4.75%, but price in three interest rate cuts in 2025.

On the economic data front, investors await the monthly Gross Domestic Product (GDP) and the factory data for October, which will be released on Friday, to get cues about the current status of the UK’s economic health.

British Pound PRICE Today

The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the Swiss Franc.

Consumer Price Index ex Food &amp; Energy (YoY)

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.10%	-0.05%	-0.17%	-0.18%	-0.63%	-0.33%	0.17%
EUR	0.10%		0.05%	-0.08%	-0.08%	-0.53%	-0.23%	0.26%
GBP	0.05%	-0.05%		-0.08%	-0.13%	-0.57%	-0.27%	0.21%
JPY	0.17%	0.08%	0.08%		-0.00%	-0.46%	-0.18%	0.34%
CAD	0.18%	0.08%	0.13%	0.00%		-0.44%	-0.15%	0.34%
AUD	0.63%	0.53%	0.57%	0.46%	0.44%		0.30%	0.79%
NZD	0.33%	0.23%	0.27%	0.18%	0.15%	-0.30%		0.49%
CHF	-0.17%	-0.26%	-0.21%	-0.34%	-0.34%	-0.79%	-0.49%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).

Daily digest market movers: Pound Sterling edges higher against US Dollar as Fed dovish bets reach extreme

The Pound Sterling moves higher against the US Dollar (USD) in Thursday’s London session but continues to struggle to revisit the key resistance of 1.2800. The GBP/USD pair rises as the US Dollar (USD) drops amid firm expectations that the Federal Reserve (Fed) will cut interest rates in the monetary policy announcement on Wednesday. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, drops around 106.50.
Traders have almost fully priced in an interest rate reduction of 25 basis points (bps) to 4.25%-4.50% by the Fed for next week’s policy meeting, according to the CME FedWatch tool. Fed dovish bets strengthened after the release of the United States (US) Consumer Price Index (CPI) report for November on Wednesday, which showed that inflationary pressures grew in line with estimates.
The CPI report showed that annual headline and core inflation – which excludes volatile food and energy prices – rose by 2.7% and 3.3%, as expected. The growth in headline inflation was the highest in four months, suggesting that progress in the disinflation process has stalled. Still, moderate growth in rental prices prompted dovish Fed bets.
Investors will pay close attention to the US Producer Price Index (PPI) data for November and the Initial Jobless Claims data for the week ending December 6, which will be published at 13:30 GMT.

Technical Analysis: Pound Sterling trades sideways around 1.2750

The Pound Sterling consolidates in a tight range around 1.2750 against the US Dollar for almost a week. The GBP/USD pair holds slightly above the 20-day Exponential Moving Average (EMA) around 1.2720.

The 14-day Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, suggesting a sideways trend.

Looking down, the pair is expected to find a cushion near the upward-sloping trendline around 1.2500, which is plotted from the October 2023 low near 1.2035. On the upside, the 200-day EMA around 1.2830 will act as key resistance.

Economic Indicator

Consumer Price Index ex Food & Energy (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as the Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The CPI Ex Food & Energy excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures. Generally speaking, a high reading is bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Federal Reserve has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

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