The British pound (GBP) traded with caution against major currencies on Thursday, managing to maintain the gains from the Fed’s recent rate cut. Investors are on edge in anticipation of critical UK economic data ahead of the Bank of England’s (BOE) decision next week.
Between Friday and the BOE’s decision that follows on Thursday, the Office for National Statistics (ONS) is set to release several reports, including monthly gross domestic product (GDP) data for October, labor market statistics for the three months leading up to October, and consumer price index (CPI) figures for November.
Market participants are particularly focused on the GDP report coming out Friday. It’s projected to reveal a 0.1% growth after a contraction of a similar magnitude last month. A positive outlook early in the fourth quarter may bolster confidence regarding economic growth. Interestingly, Britain’s fiscal watchdog has recently upped its GDP forecast for 2019 to 1.5%, a revision from the earlier 1.0% predicted in March.
In the context of GDP, investors are also keeping an eye on both manufacturing and industrial production data. Both indicators are expected to show monthly increases, likely due to low base effects.
From a financial perspective, there’s growing confidence among traders that the BOE may lower interest rates by 25 basis points to 3.75% as a response to softening labor market conditions.
Daily Digest Market Trends: Fed expects goods inflation to peak in the first quarter of 2026
- On Thursday, sterling stayed close to a seven-week high against the US dollar, hovering around 1.3400. The GBP/USD remains stable as the dollar shows weakness after Wednesday’s Federal Reserve interest rate cut.
- The U.S. Dollar Index (DXY), which gauges the dollar’s strength against six major currencies, is fluctuating around 98.54, having reached a seven-week low earlier.
- The Fed cuts the federal funds rate from 3.50% to 3.75%, as anticipated, but the dot plot indicates another potential rate cut in 2026.
- The Fed’s careful guidance features dovish notes, especially with regard to lowered inflation expectations and rising unemployment, putting pressure on the dollar. They expect goods inflation to peak in the first quarter unless new tariffs are announced.
- Before the Fed’s announcement, market players were expecting a pause in monetary expansion following the 25-basis-point cut, as inflation remained above the 2% target for a while now.
- However, Federal Reserve Chairman Jerome Powell’s remarks had a hawkish tone, noting the high threshold for any further rate cuts and affirming the Fed’s readiness to monitor economic developments.
- Investors will shift their attention to new U.S. jobless claims data for the week ending December 5, due out at 1:30 p.m. Japan time. The expectation is for claims to rise to 220,000, compared to 191,000 previously.
Technical analysis: GBP/USD sees further upside potential towards 1.3470
The British pound showed resilience against the US dollar on Thursday, stabilizing at 1.3370. The GBP/USD pair trades above the uptrending 20-day exponential moving average (EMA) of 1.3266, which supports its upward trend. If there’s demand at this key level, a rebound seems possible.
The 14-day Relative Strength Index (RSI) sits at 63, indicating a bullish stance but has dipped slightly from recent highs, although momentum remains upbeat.
As long as GBP/USD remains above the 20-day EMA of 1.3266, there’s potential for further progress toward the October 17 peak of 1.3471. However, closing below this EMA could neutralize the trend and draw the pair back to the November 25 low of 1.3100.
