The pound sterling (GBP) against the US dollar (USD) fluctuated last week amid growing bets of rate cuts from both central banks. Currently, the GBP/USD is trading around the 1.2730 level at the time of writing this analysis. In general, the GBP is being undermined by bets of a rate cut from the Bank of England. Recently, the pound sterling stumbled at the beginning of the week after warnings from KPMG, the accounting giant. The company warned that the UK economy is “vulnerable to shocks” and “limping.” Yesterday, hawkish comments from Bank of England Deputy Governor Ben Broadbent brought some strength to the pound. However, ongoing concerns about the UK economic outlook capped its gains.
On the other hand, UK inflation data was much lower than expected, undermining investors' expectations that the Bank of England may keep interest rates higher for a longer period than other global central banks. This led to the pound sterling falling into the abyss, as it weakened sharply against most other major currencies.
At the end of last week, selling operations continued, with the continued intensification of bets on lowering interest rates. In addition, the latest distribution trade data from the Confederation of British Industry (CBI) came in well below expectations. On Friday, although British retail sales reported well above expectations in November, third-quarter GDP data in the UK was revised lower, showing a contraction of 0.1% on a quarterly basis. Thus, this has affected the price of the pound sterling by raising renewed concerns about the possibility of the UK entering a technical recession.
Meanwhile, the US dollar (USD) exchange rates declined due to bets on a US interest rate cut. The US dollar started the week's session on a weak note, as bets on interest rate cuts by the Federal Reserve continue to intensify. Obviously, markets began pricing in a rate cut in March, resulting in tepid trading for the US dollar. Moreover, the lack of market-moving data has increased pressure on US dollar exchange rates.
Trade risks contributed to increasing selling pressure on the US dollar, due to its safe-haven nature. This has led to the decline of the US dollar in the face of more risk-sensitive competitors. By the end of last week, the US dollar struggled on Friday to find support ahead of the release of the latest core PCE price index, as investors remained aware that the main measure of inflation was expected to cool.
GBPUSD Expectations and Analysis Today:
Trading conditions are expected to be weak due to market closures for Christmas. For this reason, the pound sterling is unlikely to find much support as investors gear up for the holidays. After that, a lack of data releases until the new year is likely to keep pound sterling momentum in check. With little for investors to analyze, the focus may remain on the UK economic outlook. Any negative headlines could weigh on the pound sterling.
In addition, market sentiment is likely to be the main driver of movement. As an increasingly risk-sensitive currency, a shift towards risk-on trading at the end of the year could boost the pound sterling against safer-haven currencies. The story is similar for the US dollar, as market closures are likely to provide weak liquidity for the dollar.
GBP/USD is on a path of recovery and stabilization above the 1.2760 resistance is encouraging bulls. However, the move towards rate cuts by both the Bank of England and the US Federal Reserve could weaken bull appetite somewhat. As a result, the pair may find some difficulty launching towards the psychological resistance of 1.3000 in the near term. Finally, we still prefer to sell the pair from every upward level.
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