- Sterling rallied after Bank of England Governor William Bailey said he believed the process of defusing inflation was taking hold and predicted four interest rate cuts in 2025.
- Traders expect the central bank to keep interest rates unchanged at 4.75% at its meeting this month.
- Investors are awaiting a number of US economic indicators and Chairman Powell's speech.
The British pound (GBP) on Wednesday pared some of its gains against other countries after Bank of England (BoE) Governor Andrew Bailey predicted four interest rate cuts in 2025 in an interview with the Financial Times (FT). I let go.
Andrew Bailey reiterated that interest rates should be reduced gradually, stressing the need to take further action to rein in inflation, even though “the deflation process is well built in” did. Asked about the impact of US president-elect Donald Trump's tariffs on UK inflation, Mr Bailey said such an impact was “not easy to predict”.
Governor Bailey did not give an indication of the rate decision expected at the monetary policy meeting on December 19, but traders expect the central bank to keep interest rates unchanged at 4.75%.
Concerns that UK inflation will persist have increased market expectations that the Bank of England will maintain interest rates. The UK's October inflation report showed that the annual core consumer price index (CPI), which excludes variable items, accelerated to 3.3%, while services inflation rose to 5%. Service sector inflation is closely tracked by BoE officials for interest rate policy decisions.
Daily Digest Market Trends: Sterling is strong against the US dollar
- Sterling faced selling pressure near 1.2700 during North American trading on Wednesday and was volatile against the US dollar. With the rise of the US dollar (USD), the GBP/USD pair is experiencing some whiplash movements.
- Investors as the Federal Reserve began a policy easing cycle in September amid concerns about deteriorating labor demand and high confidence that inflation remains on a sustainable trajectory. will pay close attention to Friday's US nonfarm payrolls (NFP) data. The bank's target is 2%.
- In Wednesday's session, investors will focus on Fed Chairman Jerome Powell's speech at the New York Times Dealbook Summit, which calls for new guidance on interest rates. According to the CME FedWatch tool, there is a 74% chance that the Fed will cut interest rates by 25 basis points (bp) to 4.25-4.50%, with the remainder supporting holding them at current levels. .
- On the economic front, investors will focus on November US ADP employment changes and ISM Services Purchasing Managers Index (PMI) data on Wednesday. Economists expect the U.S. private sector to add 150,000 new jobs in November, well below the 233,000 jobs in October. Services PMI for the same period is estimated to have grown at a slower pace, from 56.0 in the previous release to 55.5. A number above 50.0 indicates an expansion in economic activity.
Technical analysis: GBP falls from 20-day EMA
Sterling is facing sellers against the US dollar after a mean-reversion move near its 20-day exponential moving average (EMA) around 1.2710. The GBP/USD pair could fall further as all short- to long-term exponential moving averages (EMAs) are trending down and the outlook remains bearish.
The 14-day Relative Strength Index (RSI) has rebounded from oversold conditions. However, the downward bias still remains.
Looking down, the pair is expected to find a cushion near the upward trendline around 1.2500, plotted from the March 2023 low around 1.1800. On the upside, the main resistance will be the 200-day exponential moving average (EMA) near 1.2830.
