The Pound Sterling Struggles Amid Economic Uncertainty
- UK Retail Sales Data Disappoints: The Pound Sterling faces pressure as growth in the UK Retail Sales data for November falls short of expectations.
- BoE Interest Rate Cut Speculation: A higher number of Bank of England (BoE) officials voted for an interest rate cut, fueling dovish bets for 2025.
- US PCE Inflation Data Awaited: Investors are eagerly waiting for the US Personal Consumption Expenditure (PCE) inflation data for November to gauge the Federal Reserve’s interest rate stance.
The Pound Sterling (GBP) hit a fresh seven-month low near 1.2470 against the US Dollar (USD) on Friday. The GBP/USD pair weakened as the US Dollar Index (DXY) surged to a two-year high around 108.50 before retracing in European trading hours.
The US Dollar’s Strength and Federal Reserve’s Policy Shift
Recent developments indicate a strengthening outlook for the US Dollar. The Federal Reserve (Fed) cut key borrowing rates by 25 basis points (bps) to the 4.25%-4.50% range as expected but signaled a slower rate-cut trajectory for 2025. Fed officials project federal fund rates to reach 3.9% by 2025, up from the previous estimate of 3.4% in September.
The Fed’s confidence in strong economic growth has led to fewer anticipated rate cuts in the future. The latest GDP data for Q3 showed higher than expected growth at 3.1%, further supporting the Fed’s stance.
Daily Market Movers: Pound Sterling Faces Pressure
- UK Retail Sales Data Analysis: The Pound Sterling underperforms against major peers after the release of UK Retail Sales data for November, which showed slower growth than anticipated.
- BoE Monetary Policy Uncertainty: The Bank of England (BoE) left interest rates unchanged at 4.75% but saw a dovish tilt in policy outlook with three policymakers advocating for rate cuts.
The BoE’s cautious approach and uncertainty surrounding future rate cuts have added to the Pound Sterling’s woes. Traders are pricing in a potential 53 basis points interest rate reduction by the BoE in 2025.
Technical Analysis: Pound Sterling’s Downward Trajectory
The Pound Sterling’s decline against the US Dollar is evident with a break below the upward trendline at 1.2600. The presence of a death cross and a bearish RSI signal further downside potential for the GBP/USD pair.
Support is seen near 1.2300, while resistance lies at 1.2730, highlighting key levels to watch in the coming sessions.
Economic Indicator Spotlight: Core Personal Consumption Expenditures
The Core Personal Consumption Expenditures (PCE) Price Index is a crucial indicator released by the US Bureau of Economic Analysis. It serves as the Fed’s preferred measure of inflation, with the YoY reading offering insights into price trends and economic conditions.
Understanding this data can provide valuable cues about the US economy’s health and potential impact on the US Dollar’s performance.