The US Central Bank’s announcement to keep US interest rates unchanged, with clear indications of the possibility of lowering rates next year. Therefore, this took investors’ attention a lot from the future of the Bank of England’s policy regarding the future of the reduction as well, which allowed the price of the GBP/USD to bounce strongly upward. From the psychological support level of 1.2500, the gains extended to the resistance level of 1.2635 following the decision. Recently, GBP/USD is stable around it at the time of writing the analysis, at a time when the British pound is awaiting the Bank of England’s announcement later today.
If the Bank of England’s “BoE” signals are more stringent than the US Central Bank, the GBP/USD may increase its current gains. Yesterday, the results of economic data showed that the British economy has contracted stronger than expected. Thus, this enhances the possibilities of interest cuts at the Bank of England in 2024.
Recently, The British pound was softer after it was reported that the UK economy contracted by -0.3% on month in an exceptionally wet October. Clearly, there’s a notable slowdown from the 0.2% growth recorded in September and disappointing against market expectations for 0%. On an annual basis, the UK economy saw growth of 0.3% in October, ONS reported, which was half the 0.6% of the market expected. Also, that’s below the 1.3% output recorded in September. Finally, the three-month gauge of GDP was flat at 0% in October, unchanged from the previous month but below the 0.1% consensus.
In general, soft data will encourage the markets to bet on the likelihood that the Bank of England will be prompted to cut interest rates on multiple occasions in 2024. Therefore, this putting pressure on bond yields in the United Kingdom and the pound's exchange rate.
ING Bank's expectations for the pound-dollar exchange rate:
ING Bank warns of the risks of the pound falling below 1.25 against the dollar. Also, it cautioned against further weakness in the pound-dollar exchange rate during the mid-week session, which will expose the latest decisions and guidance from the Federal Reserve regarding interest rates. Meanwhile, Analysts at ING suggest that Federal Reserve Chair Jerome Powell and his colleagues "still have the potential to influence the dollar" by convincing the market that there is still a lot of interest rate cuts in 2024.
Recently, the U.S. dollar had risen during December as the markets expected a more "hawkish" message from the Federal Reserve this month after more data indicated that the economy remains strong and inflation slowdown. In this regard, Francesco Pesole, an expert at ING Bank, states, "The markets priced in about 11 basis points of easing from the 6 million tranches of the Federal Reserve's futures curve, but they still fully price in the first cut in May, and we believe Fed Chair Jerome Powell and the majority of FOMC members will continue to consider these expectations overly pessimistic." Finally, analysts at ING Bank add that the main tool the Federal Reserve will have to guide the market is the new set of Dot Plot expectations.
Regarding forex trading, the bank's analyst suggests that risk appetite may face a more stringent environment in favor of the strength of the dollar through the safe-haven channel. Historically, the pound-dollar exchange rate entered December at 1.2622 but has since declined to 1.2530, with ING Bank warning that it may see a break below the critical level of 1.2500.
GBPUSD Expectations and Analysis Today:
The GBP/USD forecast shows that it has now fallen to trade a few levels below the 100-hour moving average line. As a result, it appears that the currency pair is about to enter the oversold levels of the 14-hour RSI. In the near term. According to the performance on the hourly chart, it appears that the GBP/USD pair is trading within a descending channel formation. Currently, GBP/USD declined to trade near the oversold levels of the 14-hour RSI. Therefore, the bears will look to extend the current declines towards the 1.2500 support or lower to the 1.2458 support. On the other hand, the bulls - the bulls - will be looking to pounce on profits at around 1.2600 or higher at 1.2671.
In the long term, and according to the performance on the daily chart, it also appears that the GBP/USD pair is trading within a descending channel. Technically, the 14-day RSI appears to have pulled back recently to avoid rising into overbought conditions. Furthermore, the bears will target extended pullbacks at around 1.2455 or lower at the 1.2308 support. In contrast, the bulls - the bulls - will target long-term profits at around 1.2645 or higher at the 1.2830 resistance.
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