The Pound Sterling (GBP) remained confined to a tight trading range below 1.2600 against the US Dollar (USD) during Wednesday’s London session, as markets await the release of the US Personal Consumption Expenditure (PCE) Price Index for October, scheduled at 13:30 GMT.
The core PCE inflation data, which excludes food and energy prices, is forecast to rise to 2.8% year-over-year from 2.7% in September, with a steady monthly increase of 0.3%. The data is pivotal for shaping the Federal Reserve’s (Fed) policy decisions as it serves as their preferred measure of inflation.
Fed Rate Expectations in Focus
Investors are closely watching the inflation numbers to gauge the Fed’s next move regarding interest rates at its December meeting. According to the CME FedWatch tool, the likelihood of a 25 basis point (bps) rate cut to a range of 4.25%-4.50% has risen to 65%, up from 56% last week.
Dovish expectations have gained momentum following the release of the November 7 Federal Open Market Committee (FOMC) minutes. While some Fed officials hinted at a potential pause in rate cuts if inflation stays elevated, others suggested that economic or labor market weakness might necessitate accelerating the policy-easing cycle.
Additional US Data on Investors’ Radar
Apart from PCE inflation, markets will scrutinize revised Q3 Gross Domestic Product (GDP) growth estimates, October Durable Goods Orders, Personal Spending figures, and Initial Jobless Claims for the week ending November 22, all due on Wednesday.
Sterling Weighed by Trade Concerns and BoE Outlook
The Pound has exhibited caution amid concerns over potential US tariffs under President-elect Donald Trump’s administration. Trump’s nomination of hedge fund manager Scott Bessent as Treasury Secretary has raised expectations of a deliberate approach to implementing trade policies, potentially avoiding severe trade conflicts.
Bank of England (BoE) Deputy Governor Clare Lombardelli, in a recent Financial Times interview, flagged risks posed by US tariffs to UK economic growth, describing trade barriers as a negative factor across time horizons. However, she stopped short of quantifying the potential impact, stating it was “too early” to assess.
On interest rates, Lombardelli emphasized the need for clear evidence of easing price pressures before supporting further cuts. She warned inflation could exceed BoE forecasts, with wage growth stabilizing at 3.5%-4% and Consumer Price Index (CPI) inflation potentially lingering around 3%.
The absence of major UK economic data this week leaves the Pound’s trajectory dependent on BoE rate expectations for December. Markets broadly anticipate the BoE to hold rates steady at 4.75%.
Technical Outlook: Sterling Weakens Below 1.2550
Technically, the GBP/USD pair is trading below an upward trendline near 1.2550, originating from the October 2023 low of 1.2040. The pair’s outlook remains bearish, with the 20- and 50-day Exponential Moving Averages (EMAs) at 1.2735 and 1.2883, respectively, trending downward.
The 14-day Relative Strength Index (RSI) remains in the 20.00-40.00 range, signaling sustained bearish momentum. Key support lies near May’s low of 1.2446, while resistance is expected around the November 20 high of 1.2720.
Market Snapshot
As the market digests critical data, both currencies are poised for significant moves depending on inflation figures and central bank guidance, keeping traders on high alert.
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