The continued pressure on the US dollar allowed bulls in the GBP/USD pair to rebound higher, reaching the 1.2816 resistance level, the highest for the pair in four months. Currently, GBP/USD is consolidating higher ahead of the release today of the number of weekly US jobless claims and the number of pending US home sales, with the absence of any British economic releases.
In general, Year-end selling is keeping the US dollar under pressure, and trading volumes will remain very light for the remainder of the year, which will weaken overall activity. If risk appetite remains strong, there will be room for further limited selling of the US dollar.
Recently, economic data releases were mixed, although the Federal Reserve Bank of Philadelphia's non-manufacturing index improved sharply to 6.3 for December from -11.1 in the previous month. There was stronger revenue growth, although new orders remained in the contraction zone. Also, Wage pressure continued to rise, but overall inflation measures fell slightly during the month.
As for the future of US interest rate policy, in comments this week, former Dallas Fed President Kaplan said he expects the Federal Reserve to cut interest rates soon. According to Kaplan, "One of the reasons we got ourselves into this inflationary problem is that the Fed stayed too tight for too long, even as the economy was improving, and I don't think they want to make the same mistake on the other side, where it stays too tight." He added, "With the economy slowing and inflation coming down. It doesn't want to make the opposite mistake either."
Meanwhile, there has been no major shift in the pricing of US interest rates on the Federal Reserve, as financial markets remain very confident in an early move to cut rates. Consequently, traders are expecting an 85% chance of a rate cut in March 2024 and are nearing a 100% chance of at least one move by May. According to futures markets, the most likely outcome for the end of 2024 is that US interest rates will be cut by 150 basis points, which would lead to a reduction in the federal funds rate to 4.00%.
As a result, BBH expects the US dollar to remain under pressure in the near term. Presumably, the dollar is to remain under pressure this week due to the absence of any major data that could slow the downtrend. Also, Data releases in early 2024 will be important in determining whether there is a shift in market expectations.
GBPUSD Expectations and Analysis Today:
Yesterday's rebound pushed the GBP/USD pair to a few levels above the 100-hour moving average line. As a result, the currency pair is now trading at overbought levels of the 14-hour RSI. In the near term, and according to the performance on the hourly chart, it appears that the GBP/USD pair is trading within an ascending channel formation. Also, the 14-hour RSI appears to be supporting a short-term uptrend after advancing to overbought levels. Therefore, the bulls will target extended gains at around 1.2839 or higher to the 1.2886 resistance. On the other hand, the bears will look to pounce on pullbacks at around 1.2742 or lower at the 1.2694 support.
In the long term, and according to the performance on the daily chart, it appears that the GBP/USD pair is trading within an upward channel. Clearly, the 14-day RSI appears to support a long-term bullish bias as it approaches overbought levels. Furthermore, bulls will target long-term profits at around 1.2960 or higher at 1.3139 resistance. On the other hand, the bears will look to pounce on pullbacks at around 1.2611 or lower at the 1.3438 support.
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