GBP/USD Forecast: Pound Dips After Subpar November CPI

• November’s British inflation data fell well below expectations.

• Markets fully anticipate a 25 basis point Bank of England rate cut in June 2024.

• Market participants are now pricing in a 69% chance of the first Fed cut in March.

Disappointing November British inflation data led to a bearish GBP/USD forecast on Wednesday. The figures, significantly below expectations, have strengthened the perception that Bank of England rate cuts could be on the horizon, leading to a decline in the currency.

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Notably, British annual consumer price inflation dropped to 3.9% from October’s 4.6%, marking the lowest rate since September 2021. Moreover, this figure fell below all forecasts in a poll of economists, which had anticipated 4.4%. Additionally, core inflation unexpectedly cooled, decreasing to 5.1% from 5.7%.

Inflation measures remain above the Bank of England’s 2% target. Therefore, the data supports the argument that it is too early to consider interest rate cuts, particularly with core inflation significantly exceeding levels consistent with the target. Currently, markets fully anticipate a 25 basis point Bank of England rate cut in June 2024. At the same time, there is over a 50% chance of a cut in May.

On another front, the US dollar held strong on Wednesday as traders assessed the likelihood of Fed rate cuts. The dollar fell following last week’s Federal Open Market Committee meeting, where policymakers projected three rate cuts for 2024. 

Furthermore, market participants are now pricing in a 69% chance of the first cut occurring at the Fed’s March meeting, followed by a 63.3% probability of another in May. On Tuesday, Richmond Fed President Thomas Barkin stated that the central bank’s ability to fulfill projections of rate cuts depends on the economy’s performance.

GBP/USD key events today

• US CB Consumer Confidence

GBP/USD technical forecast: Bears seize control following lower high

On the technical side, GBP/USD has broken below the 30-SMA support line after making a lower high. Bulls initially respected the 30-SMA as support but failed to make a higher high to continue the uptrend. Consequently, the price fell back below the 1.2700 key level. Moreover, the RSI broke below 50 and currently supports solid bearish momentum. 

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However, to confirm this new direction, bears must break below the previous low to make a lower low. If this happens, the price will likely cross below the 1.2601 key support, allowing bears to target the 1.2501 support level.

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• Source: https://www.forexcrunch.com/blog/2023/12/20/gbp-usd-forecast-pound-dips-after-subpar-november-cpi/