GBP/USD Outlook Remains Bearish Amid Central Bank Speculation
- Traders anticipate a bearish trend for GBP/USD, taking into account upcoming central bank meetings and crucial UK economic data.
- Central focus shifts to the Bank of England (BoE) and Federal Open Market Committee (FOMC) rate announcements this week, particularly their guidance on future policies.
- Key levels to monitor: support at 1.25 and resistance at 1.28.
Recent weak economic indicators from the UK pushed GBP/USD towards the 1.26 level. Simultaneously, EUR/GBP experienced a robust rebound, climbing from 0.82 to over 0.83, thereby concluding the week positively. This upswing in EUR/GBP provided support for EUR/USD, which made gains back to $1.05, setting the stage for a highly significant week regarding central bank decisions worldwide. Investors predict a potential final wave of volatility in 2024, as the Federal Reserve, the Bank of England, and other key central banks reveal their monetary policies for the forthcoming year. Consequently, the GBP/USD outlook appears increasingly bearish in this environment characterized by uncertainty.
US Dollar Gains Momentum Ahead of FOMC Meeting
The recent US CPI results aligned with market forecasts, yet a hotter-than-expected PPI kindled concern among traders. Regardless, there is strong market consensus for a 25-basis-point cut at the Fed's final meeting of the year on Wednesday, with this outcome nearly priced in. The spotlight will be firmly on the Fed’s guidance regarding future policy.
A pivotal question is whether the Fed will pause its rate-reduction cycle early in 2025 or continue with incremental 25-basis-point cuts. Jerome Powell's recent remarks about diminished labor market risks juxtaposed with ongoing inflation issues have fueled speculation of a potential "hawkish cut." Traders will closely analyze Powell’s comments during the post-meeting press conference, as well as the updated economic projections, as they may significantly sway market sentiment.
The fiscal strategies of President-elect Trump next year could influence the Fed's approach, potentially leading to a more cautious easing path through 2025. Such developments are likely to bolster the US dollar and reinforce a bearish forecast for GBP/USD.
BoE Decision's Impact on GBP/USD Outlook
As the Fed takes center stage midweek, Thursday's BoE decision is also poised to significantly affect GBP/USD. Following last week's dismal UK GDP figures and other disappointing macroeconomic data, the market widely anticipates a 25-basis-point cut by the BoE, bringing rates to 4.50%. Initial data releases, including Monday’s Global and UK PMIs, Tuesday’s wage statistics, and Wednesday’s CPI, will provide crucial insight into the central bank's possible direction.
The BoE's messaging will be critical. A dovish stance indicating ongoing risks to economic growth could place downward pressure on the pound, while a more cautious approach to easing might lend some support. With both Fed and BoE decisions occurring within a day of each other, significant volatility in GBP/USD is almost certain.
GBP/USD Technical Analysis
From a technical perspective, the GBP/USD outlook is bearish following last week’s inability to maintain levels above the 1.28 resistance. A decrease below the 1.2715/20 zone opens the possibility of further declines, with immediate support identified around the 1.26 threshold. A significant break below this support could lead to a retest of the long-term bullish trend line near 1.25, a notable psychological level where the currency pair found support in November after a brief dip to 1.2487.
On the upside, resistance is found within the 1.2800–1.2870 range, coinciding with the 200-day moving average and prior support levels. For a bullish recovery in GBP/USD, the pair must navigate above this resistance zone.
Conclusion
The outlook for GBP/USD remains bearish as the market prepares for a critical week focused on central bank decisions. While a hawkish move from the Fed is anticipated to support the US dollar, the BoE's dovish stance could further exert pressure on the pound. Key economic data releases throughout the week will shape market expectations, leading to increased volatility.
-- Analysis by Market Research Team
