- British pound falls The outlook remains weak as UK gold yields rise.
- Investors are awaiting December UK and US CPI figures to be released on Wednesday.
- The Fed is expected to cut interest rates only once this year.
The British pound (GBP) resumed its decline in the European session on Tuesday due to a rise in United Kingdom (UK) gold yields. UK 30-year gold yields are at their highest level since 1998, driven by multiple tailwinds, including increased uncertainty over future trade policy under President-elect Donald Trump's administration and persistent inflationary pressures. It rose to nearly 5.47%. and slowing UK growth expectations.
A healthy rise in UK gold yields has created an uncomfortable situation for UK Chancellor of the Exchequer Rachel Reeves. The Chancellor had already faced a backlash from employers for raising National Insurance (NI) contributions, leaving him with little fiscal space if the situation were reversed.
Market participants expect the UK government to rely on overseas financing to fund day-to-day spending to avoid rising domestic borrowing costs. However, the UK Treasury maintains a non-negotiable commitment to rely on borrowing only for investment, not to meet day-to-day spending.
Meanwhile, investors' attention has shifted to December UK Consumer Price Index (CPI) data due on Wednesday. Investors will be paying close attention to UK inflation statistics. The statistics will raise market expectations for the Bank of England's (BoE) expected rate policy at its February policy meeting.
Analysts at UBS expect the BoE to cut interest rates next month, with further rate cuts planned for later this year. UBS said rising borrowing costs flowing into the real economy were “tightening financial conditions”. “Inflationary pressures remain but are weakening, and a rate cut in February and further cuts by the end of the year remain our base case,” the Swiss bank added.
British pound PRICE today
The table below shows the percentage change of the British Pound (GBP) against major currencies today. The British pound was the strongest against the Japanese yen.
| USD | EUR | GBP | JPY | CAD | australian dollar | new zealand dollar | swiss franc | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.40% | -0.10% | 0.14% | -0.11% | -0.36% | -0.74% | -0.21% | |
| EUR | 0.40% | 0.30% | 0.55% | 0.29% | 0.03% | -0.34% | 0.19% | |
| GBP | 0.10% | -0.30% | 0.25% | -0.01% | -0.27% | -0.64% | -0.11% | |
| JPY | -0.14% | -0.55% | -0.25% | -0.26% | -0.51% | -0.89% | -0.36% | |
| CAD | 0.11% | -0.29% | 0.01% | 0.26% | -0.25% | -0.62% | -0.10% | |
| australian dollar | 0.36% | -0.03% | 0.27% | 0.51% | 0.25% | -0.36% | 0.16% | |
| new zealand dollar | 0.74% | 0.34% | 0.64% | 0.89% | 0.62% | 0.36% | 0.53% | |
| swiss franc | 0.21% | -0.19% | 0.11% | 0.36% | 0.10% | -0.16% | -0.53% |
The heat map shows the percentage change between major currencies. The base currency is selected from the left column and the quote currency is selected from the top row. For example, if you select British Pounds from the left column and move along the horizontal line to US Dollars, the percentage change displayed in the box represents GBP (Basic)/USD (Quote).
Daily Digest Market Movement: GBP gives up gains against USD ahead of US PPI
- In Tuesday's European session, the British pound gave up intraday gains and fell below 1.2200 against the US dollar (USD). The outlook for GBP/USD was already fragile on the back of firm expectations that the US Federal Reserve (Fed) would reduce interest rate cuts this year. The US Dollar Index (DXY), which tracks the value of the US dollar against six major currencies, has risen to near 109.60 at the time of writing and is aiming to revisit more than two-year highs above 110.00.
- Barclays strategists have lowered their expectations for the number of rate cuts this year by the Fed. The bank expects the Fed to cut interest rates only once this year compared to two in previous years, given better-than-expected U.S. labor market data and persistent inflation expectations.
- Meanwhile, investors are waiting for December US CPI data to be released on Wednesday. Year-on-year headline inflation is expected to accelerate to 2.8% from 2.7% in November, with the core reading steadily increasing by 3.3%.
- Signs of stubborn price pressures could fuel expectations that the Fed will avoid rate cuts this year. But softening inflation pressures are unlikely to support the Fed's dovish bets, as investors expect future policies under the Trump administration, such as immigration controls, tax cuts and higher tariffs, to boost growth. low.
- In Tuesday's session, investors will focus on December US Producer Price Index (PPI) data, which will be released at 1:30pm Japan time.
Technical analysis: GBP remains mostly weekly as 20-day EMA declines
Sterling gave up intraday gains and fell below 1.2200 against the US dollar in European trading on Tuesday. Earlier, the GBP/USD pair hit its lowest in more than a year near 1.2100 on Monday before rebounding. The outlook for cable remains bearish as the 20-day exponential moving average (EMA) falling vertically around 1.2430 suggests that the short-term trend is very bearish.
The 14-day Relative Strength Index (RSI) rebounded slightly after falling below 30.00 as the momentum oscillator turned oversold. However, the broader scenario remains bearish until it recovers within the 20.00-40.00 range.
Looking downside, the pair is expected to find support near the October 2023 low of 1.2050. On the upside, the 20-day EMA will act as the main resistance.
