- GBP/USD traders face a critical week as central bank decisions could jolt the pair out of its range.
- Inflation data and GDP reports add another layer of intrigue, setting the stage for potential volatility.
- Key technical levels at 1.2350 and 1.2850 will help define the pair's next big move.
- Take advantage of our Extended Cyber Monday offer—your last chance to secure InvestingPro at a 55% discount!
As the year winds down, markets often slip into a holiday lull—but not just yet. This week brings a pivotal double-header of central bank decisions that could shake the GBP/USD pair out of its recent range.
The Federal Reserve announces its rate decision on Wednesday, followed by the Bank of England on Thursday. While markets largely expect no surprises, any deviation from consensus could ignite sharp moves in either direction.
The baseline scenario anticipates the Fed cutting rates by 25 basis points while the BOE holds steady. But the real market movers will likely be the accompanying statements and press conferences.
Both banks are expected to continue easing into next year, and if the BOE signals a more aggressive stance amid sluggish economic growth, GBP/USD could extend its climb.
Central Bank Showdown: BOE vs. Fed
The Fed and the Bank of England face a critical moment, battling economic headwinds just before the holiday season.
For the Fed, the likelihood of a 25 bps rate cut has steadily increased, now sitting above 90%. The path forward hinges on upcoming data and policy moves from the new U.S. administration.
Meanwhile, the BOE may find itself constrained by surging inflation, which recently surpassed its target and could climb higher with this week’s data.
January’s increase in social security contributions is another inflationary pressure. While a dovish policy stance might seem prudent amid weak economic recovery signals, persistent price pressures could force the BOE to hold the line.
Data to Watch: Inflation and GDP
Key economic releases from the U.K. and the U.S. will play a decisive role in shaping 2024’s monetary policy outlook.
The U.K.’s inflation report, due Wednesday, is expected to show a rise to 2.6% y/y, underscoring the BOE’s challenge of balancing inflation with growth concerns. A sharp rise in prices could limit the BOE’s room for further rate cuts.
On Thursday, U.S. GDP figures are set for release, with consensus pointing to a 2.8% Q/Q annualized growth rate. Despite global uncertainties, this would mark a stable economic performance, reinforcing expectations for a measured pace of easing from the Fed.
GBP/USD: Technical Picture
The GBP/USD pair remains under pressure after breaking down from a local flag formation. Sellers have pushed the pair toward the key support zone at 1.2350, though buyers have temporarily slowed the decline.
A sustained break below 1.2350 could open the door to further losses, while a recovery above 1.2850 would shift focus to the psychological $1.30 level. For now, the prevailing bias leans bearish, with traders closely eyeing central bank cues for the next decisive move.
***
Take advantage of our Extended Cyber Monday offer—your last chance to secure InvestingPro at a 55% discount—and gain insights into elite investment strategies and access over 100 AI-driven stock recommendations every month.
Interested? Click on the banner below to discover more.
Disclaimer: This article is written for informational purposes only. It is not intended to encourage the purchase of assets in any way, nor does it constitute a solicitation, offer, recommendation or suggestion to invest. I would like to remind you that all assets are evaluated from multiple perspectives and are highly risky, so any investment decision and the associated risk belongs to the investor. We also do not provide any investment advisory services.