Contents
GBP/USD is currently retracing gains, hovering around 1.2750 in early European trading on Friday. GBP/USD Retreats to 1.2750. This comes ahead of the release of preliminary UK and US PMI data, which is expected to influence market sentiment. The currency pair has maintained its weekly gains, supported by a hawkish outlook from the Bank of England (BoE) and a dovish pivot from the Federal Reserve (Fed).
Highlights:
- GBP/USD Retreats to 1.2750, holding weekly gains supported by a hawkish Bank of England (BoE) and a dovish pivot from the Federal Reserve (Fed)
- Technical indicators, including the Relative Strength Index (RSI) and Simple Moving Average (SMA), suggest bullish momentum. Resistance levels are at 1.2735 and 1.2800, with strong support at 1.2600
- The Fed’s recent decision to maintain interest rates and Powell’s dovish tone contrast with expectations of the BoE keeping rates at 5.25%. Market focus is on potential shifts in the BoE’s cautious stance on inflation and economic challenges.
Technical Overview: GBP/USD Retreats to 1.2750
1 day chart:
4 hours chart:
Source: Trading Compass
From a technical perspective, the Relative Strength Index (RSI) on the 4-hour chart indicates bullish momentum with a reading above 60. Initial resistance is seen at 1.2700, a psychological level, followed by 1.2735 (November 29 high) and 1.2800, another psychological and static level. On the downside, the 100-period Simple Moving Average (SMA) and the Fibonacci 23.6% retracement at 1.2600 act as strong support. A close below this level could open the door for further declines towards 1.2550 (static level) and 1.2500 (psychological level, Fibonacci 38.2% retracement).
4 hours chart:
Source: Trading Compass
Read more: BOE Rate Decision Impact: Three Possible Outcomes and Their Impact on GBP/USD
Fundamental Overview
- GBP/USD gained bullish momentum, reaching a 10-day high above 1.2600 on Thursday. The near-term technical outlook suggests a bullish bias, but attention is now turning to the Bank of England’s policy announcements scheduled for later in the day.
- The Fed recently left interest rates unchanged at 5.25%-5.5%, with a dovish tone expressed by Chairman Jerome Powell during the post-meeting press conference. Powell emphasized the intention to avoid keeping rates too high for too long, signaling a potential topic of conversation about rate cuts in the future. This dovish stance led to a rally in Wall Street’s main indexes, causing a sharp decline in the US Dollar Index and US Treasury bond yields.
- Looking ahead, the BoE is expected to keep the key interest rate unchanged at 5.25%. In the November meeting, the BoE highlighted upside risks to inflation projections, with three members voting for a 25 bps rate hike. Market participants are keenly watching for the December decision, especially for any change in the cautious tone on inflation or acknowledgment of recent disappointing growth data and softer wage inflation readings.
- If the BoE maintains a cautious stance on inflation, any losses in Pound Sterling could be limited. Conversely, a acknowledgment of economic challenges could lead to a downturn in GBP/USD. Traders will closely scrutinize the statement language, particularly concerning inflation and growth outlook.
Read more: UK Construction Sector Declines in November-PMI Drops Below Growth Threshold
Conclusion
GBP/USD Retreats to 1.2750, maintaining weekly gains backed by a hawkish BoE and dovish Fed. Technical indicators show potential upside with resistance at 1.2735 and 1.2800. Key support lies at 1.2600. The BoE is expected to keep rates unchanged at 5.25%, with focus on any shift in tone regarding inflation and economic challenges. Traders should watch for volatility based on the central bank’s statement language.
