Sterling stabilizes as UK inflation meets expectations

• The British pound is stable against its major peers after UK inflation data for November came in line with expectations.
• The inflation data reinforces prospects that the BoE will keep interest rates steady at 4.75% on Thursday.
• The Fed is expected to cut interest rates by 25 basis points to the 4.25%-4.50% range.

The British Pound (GBP) moves strongly against its major peers on Wednesday following the release of United Kingdom (UK) Consumer Price Index (CPI) data for November, which showed that price pressures increased in line with estimates. The CPI report highlighted that annual headline inflation accelerated to 2.6% year-on-year, as expected, from 2.3% in October.

Compared to the previous month, headline inflation rose 0.1%, also meeting expectations and slowing from 0.6% growth in October.

The core CPI – which excludes volatile items such as food, energy, oil and tobacco – grew 3.5%, slower than estimates of 3.6% but faster than the previous reading of 3.3%. Services inflation, an indicator closely watched by Bank of England (BoE) officials, rose steadily by 5%.

Rising inflation reinforces expectations that the Bank of England (BoE) will leave interest rates unchanged at 4.75% at Thursday’s monetary policy meeting, with a vote of 8-1. BoE Monetary Policy Committee (MPC) member Swati Dhingra is expected to vote in favor of cutting interest rates by 25 basis points (bps) to 4.5%.

Investors will closely monitor BoE Governor Andrew Bailey’s press conference to assess whether the central bank will accelerate its policy easing in 2025.

Looking ahead, investors will also focus on UK retail sales data for November, due out on Friday.

Daily Market Summary: Sterling Sideways Awaiting Fed Policy

• The British Pound remains sideways against the US Dollar (USD) around 1.2700 in the London session on Wednesday. The US dollar consolidates ahead of the Federal Reserve’s (Fed) monetary policy announcement at 19:00 GMT. According to the CME’s FedWatch tool, traders have priced a 25 bp interest rate cut, which would be the third consecutive interest rate cut.
• With market participants expecting a cut, investors will pay close attention to the Federal Open Market Committee’s (FOMC) Economic Projections and the dot chart, which shows where policymakers see the federal funds rate heading in the future. medium and long term.
• Most economists expect a less dovish Fed by 2025, according to a recent Bloomberg survey. Economists expect the Fed to cut interest rates three times next year as inflation remains above the Fed’s target. The survey also indicated that economists are more concerned about the upside risks to inflation with President-elect Donald Trump’s policies, including mass deportations, higher import tariffs and tax cuts.

Technical Analysis: The British Pound is trading near the 20-day EMA

The British Pound is teetering near the 20-day exponential moving average (EMA) near 1.2815 against the US Dollar (USD). The GBP/USD pair bounced near the ascending trend line around 1.2600, which is drawn from the October 2023 low around 1.2035.

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 psychological support near 1.2500. To the upside, the 200-day EMA near 1.2710 will act as key resistance.