GBP/USD holds above 1.2700 amid Fed divergences

• Growth of the US economy in the third quarter was reported at 5.2%, above forecasts, indicating strong investment but lower household spending.
• Federal Reserve officials are divided over future monetary policy, with some suggesting a more dovish approach.
• The GBP/USD outlook remains bullish in light of recent comments from Fed Governor Christopher Waller suggesting the possibility of rate cuts.

The British pound (GBP) clings to minimal profits against the US dollar (USD) midway through the North American session after United States (US) data showed the economy remains resilient and growing above trend. However, some Federal Reserve (Fed) officials remained dovish, while investors began to price in a dovish Fed. The GBP/USD pair is trading at 1.2703, slightly above the 1.2700 level.

Sterling remains supported by expectations that the Fed will cut rates by more than 100 basis points in 2024.

Before the opening of Wall Street, a report from the US Bureau of Economic Analysis (BEA) revealed that the US economy grew above the expected 5.0%, with an increase of 5.2% in the third quarter, above the 2.1 % of the second quarter. The data showed a rebound in investment while households cut spending, which could pave the way for a slower reading in the next quarter. Despite the fact that the country is growing above its trend, Fed officials divide their opinions between a sufficiently restrictive policy or keeping the door open to rate increases.

Atlanta Fed President Raphael Bostic said he sees slower growth and easing inflationary pressures under the current monetary policy stance. For his part, Richmond Fed President Thomas Barkin was skeptical about the possibility of inflation reaching the Fed’s target and kept the option of raising interest rates open.

Across the Atlantic, the British pound failed to gain the upper hand after UK consumer credit data showed Britons ramping up borrowing to the highest in five years, coupled with hawkish comments from the UK governor. Bank of England, Andrew Bailey, who stated that “they will do whatever it takes” to get inflation to its 2% target.

Against this backdrop, the GBP/USD pair is likely to remain bullish following yesterday’s remarks by Fed Governor Christopher Waller, which opened the door to rate cuts. Since then, money market interest rate futures are forecasting 115 bps of Fed rate cuts next year, up from 85 bps yesterday morning. That being said, if the pair holds above 1.2700, the 1.2800 level is in sight.

GBP/USD Price Analysis: Technical Outlook

After reaching a multi-month high of 1.2733, the GBP/USD pair retreated below 1.2700, opening the door for a pullback. At the time of writing, the pair is forming a “doji”, suggesting indecision among traders. Additionally, a daily close below 1.2690 could exacerbate a pullback to the Nov. 28 low at 1.2606, before the 1.2600 level. A bullish scenario is in sight if buyers raise the exchange rate above 1.2700 and achieve a daily close above that level. The next critical resistance level to test will be 1.2733, followed by 1.2800.