- The British Pound is trading in a tight range near 1.2750 against the US Dollar ahead of US inflation data for November.
- Economists expect the Fed to cut interest rates by 25 basis points after the Dec. 18 policy meeting.
- Investors await monthly UK GDP data for clues on the current state of the economy.
The British Pound (GBP) is trading in a tight range near 1.2750 against the US Dollar (USD) in the European session on Wednesday. The GBP/USD pair is consolidating as investors appear to be on the sidelines ahead of the United States (US) Consumer Price Index (CPI) data for November, due at 13:30 GMT.
The inflation report is expected to show that the annual headline CPI accelerated to a faster pace of 2.7% from the previous release of 2.6%. The core CPI, which excludes volatile food and energy prices, is expected to have risen steadily to 3.3%. The monthly general and underlying CPI is expected to have grown by 0.3%.
The inflation data is unlikely to influence the Federal Reserve’s (Fed) interest rate expectations for the December 18 monetary policy meeting unless the data deviates significantly from expectations.
According to the latest Reuters poll, 90% of economists expect there to be an interest rate cut of 25 basis points (bps) next week. The survey also showed that most economists expect the Fed to pause the series of policy easing since the first 2025 policy meeting in January, assuming the US president-elect’s higher import tariffs and lower taxes policies .USA, Donald Trump, will be inflationary.
Daily Market Summary: Pound Eyes US Inflation, UK Monthly GDP
- Like the US Dollar, the British Pound is also struggling for direction against other major currencies amid the light UK economic calendar. Therefore, the British currency will be influenced by market expectations about the Bank of England’s (BoE) likely interest rate action at the December 19 monetary policy meeting.
- Traders expect the BoE to leave interest rates unchanged at 4.75% next week as price pressures persist. Ahead of the BoE policy decision, employment data for the three months ending in October and Consumer Price Index (CPI) data for November will be released, which could influence the BoE’s interest rate expectations. .
- Meanwhile, growing concerns about the strength of the UK labor market could force BoE officials to offer dovish guidance on interest rates. A recent survey by the BoE Decision Panel (DMP) showed that one-year job growth expectations fell to four-year lows.
- Later this week, investors will focus on the UK’s monthly Gross Domestic Product (GDP) and Industrial and Manufacturing Production data for October. GDP and factory data will show the current state of economic health. Economists expect factory and GDP data to have risen after declining in September.
Technical Analysis: British Pound Consolidates Above 20-Day EMA
The British Pound struggles to regain the key resistance of 1.2800 against the US Dollar. The GBP/USD pair remains slightly above the 20-day EMA around 1.2720.
The 14-day Relative Strength Index (RSI) is oscillating in the range of 40.00-60.00, suggesting a sideways trend.
Looking down, the pair is expected to find support near the ascending trend line around 1.2500, which is drawn from the October 2023 low near 1.2035. To the upside, the 200-day EMA around 1.2830 will act as key resistance.
The British Pound FAQs
The British Pound (GBP) is the oldest currency in the world (AD 886) and the official currency of the United Kingdom. It is the fourth most traded foreign exchange (FX) unit 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, which represents 11% of FX, GBP/JPY (3%) and EUR/GBP (2%). The British Pound is issued by the Bank of England (BoE).
The most important factor influencing the value of the Pound Sterling is the monetary policy decided by the Bank of England. The Bank of England bases its decisions on whether it has achieved its main objective of “price stability” – a constant inflation rate of around 2%. Its main tool to achieve this is the adjustment of interest rates. When inflation is too high, the Bank of England will try to control it by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for sterling, as higher interest rates make the UK a more attractive place for global investors to invest their money. When inflation falls too much it is a sign that economic growth is slowing. In this scenario, the Bank of England will consider lowering interest rates to make credit cheaper, so that companies will take on more debt to invest in projects that generate growth.
The data released measures the health of the economy and may affect the value of the pound. Indicators such as GDP, manufacturing and services PMIs and employment can influence the direction of the Pound.
Another important data that is published and affects the British Pound is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports during a given period. If a country produces highly in-demand export products, its currency will benefit exclusively from the additional demand created by foreign buyers seeking to purchase those goods. Therefore, a positive net trade balance strengthens a currency and vice versa in the case of a negative balance.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
