- The GBP/USD forecast remains bearish below 1.3350 as dismal UK CPI weighs on the pound.
- Rising unemployment and downward-trending UK CPI cement the odds of a BoE rate cut on Thursday.
- The weakening dollar keeps pound losses limited, with eyes on the US CPI data ahead.
The British pound plummeted against the US Dollar on Wednesday following the weaker-than-anticipated UK inflation figures in November. The GBP/USD pair fell by over 0.5% towards the 1.3310 region, defying Tuesday’s gains when the pair briefly went above 1.3450.
–Are you interested in learning more about copy trading platforms? Check our detailed guide-
According to the Office for National Statistics, the headline consumer inflation decreased to 3.2% YoY, compared to the previous 3.6% and below the market expectations of 3.5%. This was the second monthly decrease, revealing steadily falling price pressures in the UK. The core inflation also slowed to 3.2% compared to 3.4% in the previous month. Prices decreased by 0.2% MoM, highlighting the softening trend.
The services inflation, a major indicator of the Bank of England, decreased marginally to 4.4%. Although this level is still well above the BoE target, the trend has lowered confidence in maintaining the restrictive policy.
Meanwhile, the UK labor market is still losing steam. The UK unemployment rate increased to 5.1%, the highest in nearly five years. Combined, tame inflation and growing unemployment have raised the probability of a BoE rate cut.
A recovery in the US Dollar further weighed on the sterling. The Dollar Index (DXY) regained ground to reach 98.60 after marking a 10-week low in the previous week. This was despite the mixed US employment report, which indicated job growth of 64k in November, but the unemployment rate increased to 4.6%. Investors largely disregarded the weaker aspects of the report due to distortions caused by the prolonged government shutdown.
Markets are currently anticipating the Fed to maintain rates in the 3.50-3.75% range in January. The focus has shifted to the US inflation statistics due on Thursday, which may impact the anticipation of a rate reduction in the latter part of the year.
Moving ahead, GBP/USD is under pressure in the short term as traders review the UK rate expectations. But the wider demerit could be confined. Inflation in the UK remains relatively high compared to other economies, and the BoE’s easing expectations are more cautious than those of the Fed. If US inflation slows down and the dollar regains its lost momentum, the pound may stabilize even after the recent setback.
GBP/USD Technical Forecast: Downside Below 1.3350
The GBP/USD broke below the demand zone around 1.3350, marking a fresh low at 1.3310 before recovering slightly. The price is expected to retest the broken zone before resuming its downward trend. However, the RSI under 40.0, approaching the oversold zone, suggests limited downside.
–Are you interested in learning more about scalping forex brokers? Check our detailed guide-
The immediate support for the pair lies at 1.3300 near the 100-period MA ahead of the next demand zone at 1.3270, and then the 200-period MA near 1.3200. On the upside, the 1.3350 support-turned-resistance could limit gains ahead of the daily pivot at 1.3378 and then 1.3400.
Looking to trade forex now? Invest at eToro!
68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
