As of Wednesday, the British pound sterling (GBP) appears to be stabilising around the 1.2447 mark, with traders adopting a cautious stance in anticipation of forthcoming critical economic data releases from the United Kingdom later in the week.
The Dynamics Influencing GBP/USD
At the beginning of the week, the sterling found itself under considerable strain following a shift in rhetoric from one of the Bank of England’s (BoE) policymakers, Catherine Mann. Mann, previously known for her hawkish outlook, adopted a more dovish tone, asserting that diminishing domestic demand could potentially mitigate inflation risks. This pivot is significant, highlighting a departure from her prior stance.
Mann’s current perspective suggests that consumer spending is on the decline. This trend is crucial as it limits the capacity of businesses to escalate prices, thereby accelerating the anticipated reduction in inflationary pressures. Such a development is closely monitored by both economists and traders, given its implications for monetary policy and currency valuation.
Looking ahead, the BoE’s projection sees inflation climbing to 3.7% by the closure of 2025, a revision upwards from the 2.5% anticipated in December 2024. Alongside this, expectations for the United Kingdom’s Gross Domestic Product (GDP) growth for the year 2025 have been adjusted downwards to 0.75% from an earlier forecast of 1.5%. These adjustments are reflective of the broader economic challenges facing the UK.
Investors and traders are now poised for the release of key macroeconomic indicators from the UK, which are expected to provide further clarity on the economic trajectory. These include:
- An estimate of GDP for December
- Preliminary data for economic growth in Q4 2024
- End-of-year figures for industrial production
From an international perspective, the strength of the US dollar also exerts pressure on the pound; however, it’s noteworthy that in comparison to other major currencies, the GBP maintains relative stability.
Technical Analysis of GBP/USD
Upon examining the H4 chart, one observes that GBP/USD experienced a drop to 1.2332 before adjusting to 1.2458. Following this adjustment, a potential new decline towards 1.2279 is anticipated. It is likely that a tight consolidation range may establish around this point. Should the price descend below this consolidation range, subsequent targets could be set at 1.2100 and 1.2020, indicative of a continuing bearish trend. The MACD indicator reinforces this outlook, with its signal line positioned beneath zero and tilting downwards – a signal that the downtrend could persist.
Further exploration of the H1 chart reveals that following a correction to 1.2458, GBP/USD is expected to resume a downward trajectory towards 1.2279. This scenario is supported by the Stochastic oscillator, whose signal line exceeds 80, rapidly approaching 20, underscoring an amplifying bearish momentum.
In Conclusion
Currently, GBP/USD finds itself in a phase of consolidation, with the market’s attention fixated on imminent key economic disclosures from the UK. The sterling is being primarily weighed down by a softening in domestic demand and recalibrated expectations regarding the Bank of England’s policy stance. External factors such as the stronger US dollar further compound the downside risks.
From a technical standpoint, further declines appear imminent, potentially touching 1.2279 with deeper pullbacks to 1.2100 and 1.2020 on the cards, should the economic data fall short of expectations. The forthcoming UK macroeconomic announcements are critical in delineating the next substantial movement for GBP/USD.
Disclaimer: It’s important to note that the above analyses are grounded in the author’s specific viewpoint and should not be construed as trading advice. The forecasts provided here are speculative in nature and may not reflect actual market movements. RoboForex does not assume responsibility for trading outcomes that may arise from reliance on these recommendations and reviews.
