- The Pound Sterling consolidates against the US Dollar ahead of the Fed policy meeting.
- The Fed is expected to cut interest rates by 25 basis points to 4.25%-4.50%.
- An expected rise in the UK inflation data cements prospects that the BoE will keep interest rates steady at 4.75% on Thursday.
The Pound Sterling (GBP) remains broadly sideways against the US Dollar (USD) around 1.2700 in Wednesday’s London session. The US Dollar consolidates ahead of the Federal Reserve’s (Fed) monetary policy announcement at 19:00 GMT. According to the CME FedWatch tool, traders have priced in a 25-bps interest-rate reduction, which would be the third consecutive interest rate cut.
With market participants expecting a cut, investors will pay close attention to the Federal Open Market Committee (FOMC) Economic Projections and the dot plot, which shows where policymakers see the Federal funds rate heading in the medium and longer term.
According to a recent Bloomberg survey, a majority of economists expect a less dovish Fed in 2025. Economists see the Fed reducing interest rates three times next year as inflation remains above the Fed’s target. The survey also indicated that economists have become more worried about upside risks to inflation from incoming President-elect Donald Trump’s policies, which include mass deportations, higher import tariffs, and tax cuts.
Daily digest market movers: Pound Sterling remains muted after UK CPI release
- The Pound Sterling falls against its major peers on Wednesday after the release of the United Kingdom (UK) Consumer Price Index (CPI) data for November, which showed that price pressures rose in line with estimates. The CPI report highlighted that annual headline inflation accelerated to 2.6% YoY, as expected, from 2.3% in October.
- Compared with the previous month, headline inflation rose by 0.1%, also meeting expectations and easing from the 0.6% growth in October.
- The core CPI – which excludes volatile items such as food, energy, oil, and tobacco – grew by 3.5%, slower than estimates of 3.6% but faster than the former reading of 3.3%. Services inflation, a closely watched indicator by Bank of England (BoE) officials, rose steadily by 5%.
- The rise in inflation cements expectations that the Bank of England (BoE) will leave interest rates unchanged at 4.75% in the policy meeting on Thursday, with an 8-1 vote split. BoE Monetary Policy Committee (MPC) member Swati Dhingra is expected to vote for cutting interest rates by 25 basis points (bps) to 4.5%.
- Investors will closely watch BoE Governor Andrew Bailey’s press conference to gauge whether the central bank will accelerate its policy easing in 2025.
- Going forward, investors will also focus on the UK November retail Sales data, which will be released on Friday.
Technical Analysis: Pound Sterling wobbles near 20-day EMA
The Pound Sterling wobbles near the 20-day Exponential Moving Average (EMA) near 1.2815 against the US Dollar (USD). The GBP/USD pair rebounded near the upward-sloping trendline around 1.2600, which is plotted from the October 2023 low at around 1.2035.
The 14-day Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, suggesting a sideways trend.
Looking down, the pair is expected to find a cushion near the psychological support of 1.2500. On the upside, the 200-day EMA near 1.2710 will act as key resistance.
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