Created on December 18, 2024

• During my daily analysis of major currency pairs, the GBP/USD pair has captured my attention, because the British pound has rallied to reach the 1.20 level.
• What is particularly interesting about this is the fact that we are heading into a couple of extraordinarily busy days for both of these currencies.

To kick things off, on Wednesday we will have the FOMC Interest Rate Announcement, and of course the press conference and statement that goes along with it. On Thursday, we have the Monetary Policy Committee coming out of the Bank of England, which is the equivalent announcement. In other words, I expect to see a lot of volatility in this pair, as it will be “Ground Zero” for a lot of noise.

Technical Analysis

I do think that the 50 Day EMA near the 1.28 level continues to act as a bit of a ceiling in this pair, and it’s not until we break above there that I would be convinced that something is changing. What I anticipate is that we will get a little bit of a rally, and then perhaps a bit of exhaustion that short sellers will be interested in. The 200 Day EMA sits just above the 50 Day EMA, so that could also come into the picture as far as a bit of a ceiling is concerned.

Underneath, we have the 1.26 level offering intermediate support, and the 1.25 level offering much more important support. I do think that this pair will be very noisy over the next couple of weeks, because quite frankly we have a situation where traders are trying to understand where the global economy is going. The Bank of England is expected to keep its interest rates flat, giving it a 25 basis points advantage over the US dollar, assuming that the FOMC does in fact cut by 25 basis points on Wednesday. In other words, it’s going to make the British pound a little bit more resilient than most other currencies against the greenback, but I think we have so much going on right now around the world and of course so much interest in investing in the United States suddenly, that we have a situation where the upside is most certainly limited. This might end up being a fairly range bound pair over the next month or 2.

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December 17, 2024 – Written by Tim Boyer

STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Climbs

The Pound to Dollar exchange rate (GBP/USD) gained momentum on Monday following the release of UK’s and US’s preliminary PMI data for December.

On Monday, the Pound (GBP) edged higher against most of its major trading partners after the release of the UK’s preliminary PMI data for December.

The report showed that the UK’s manufacturing index continued to decline, falling from 48.0 to 47.3, which was below the expected increase to 48.2.

However, the UK’s vital services index exceeded market expectations, rising from 50.8 to 51.4, surpassing the modest forecast of 51.0.

This forecast-beating performance in the services sector provided a substantial boost to GBP exchange rates following the data release.

On Monday, the US Dollar (USD) experienced volatility following the release of the country’s preliminary S&P Global PMIs.

Much like the Pound, the US manufacturing index declined slightly, dropping from 49.7 to 48.3, which was below the anticipated rise to 49.8.

On a more positive note, the services index surpassed expectations, climbing from 56.1 to 58.5 instead of falling to 55.7. This marked the highest level in the services sector since October 2021.

Despite this strong economic performance, USD did not gain momentum following the release. Instead, it weakened against the Pound and remained relatively stable against other currencies.

GBP/USD Forecast: UK and US Data to Drive Movement

Looking ahead to Tuesday, the main driver of movement for the Pound US Dollar exchange rate will likely be the release of some high-impact economic data from both the UK and the US.

First up, the UK’s unemployment rate is expected to remain steady at 4.3%, while average earnings (excluding bonuses) are forecast to increase from 4.8% to 5%.

These economic indicators could significantly affect GBP exchange rates, particularly if there is any increased uncertainty regarding the UK’s labour market.

On the US side, the latest retail sales index will be released, and if the data meets expectations and rises from 0.4% to 0.5%, it could provide a boost to USD exchange rates.

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Nordea Bank anticipates that the Dollar will maintain its strength against the Euro throughout 2025 due to the economic divergence between the US and the Euro area; however, it says not to bet on parity just yet.

Announcing a forecast downgrade for the Euro to Dollar exchange rate (EUR/USD) for 2025, Nordea says risks that favour downside include political instability, trade wars, and a lack of improvement in economies outside of the U.S.

According to Nordea Markets’ research, the Dollar is expected to remain strong in 2025, possibly even becoming much stronger.

“There is also the potential for an even stronger dollar in the scenario of an aggressive trade war between the US and the rest of the world. Potential tariffs could put downward pressure on already weak economies outside the US and put upward pressure on US inflation, which would increase the odds that the Fed will adopt a hawkish stance,” says Philip Maldia Madsen, Macro strategist at Nordea.

Here’s a breakdown of their forecasts and the factors influencing them:

Diverging Economies: The primary driver for the strong dollar is the divergence between the US economy and the Euro area.

The U.S. economy has remained strong, while the Euro area and most other economies have slowed down. This trend is expected to continue, favouring the Dollar.

Above: “Several US sentiment indicators have skyrocketed since the election” – Nordea Markets.

Central Bank Policy: The Federal Reserve (Fed) is expected to cut its policy rate to 4.25%, while the European Central Bank (ECB) is expected to cut its policy rate to 2.25%.

This difference in policy rates is not expected to weaken or strengthen the foreign exchange rate significantly.

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Political Risks: Political instability in Germany and France could further depress the European economy. In contrast, tax cuts in the US could increase demand and potentially reverse progress on inflation.

Trade War: An aggressive trade war between the US and the rest of the world could put downward pressure on already weak economies outside the US, and could push the dollar below parity versus the euro.

It is anticipated that tariffs could increase the odds of the Fed adopting a hawkish stance.

Above: “US inflation is too high for comfort and core services have stopped falling” – Nordea Markets.

Capital Flows: Despite the possibility of capital outflows due to expensive US assets, a substantial weakening of the dollar is unlikely without a clear and meaningful economic improvement in foreign economies.

The strength of the US economy is likely to continue attracting capital to dollar-denominated assets, reinforcing its dominance.

Rate Cuts: The Fed is expected to cut rates by 25 basis points this week but is expected to slow the pace of cuts.

The ECB is expected to continue cutting rates by 25 basis points at every meeting until April of next year.

Inflation: US inflation is too high for comfort.

There are concerns that the US economy may already be operating at full capacity and that further rate cuts could create a new inflation problem. The ECB is still aiming to bring rates back to neutral territory.

EUR/USD Forecast: Nordea Markets is lowering its mid-2025 EUR/USD forecast to 1.02 from 1.03 and its end-2025 forecast to 1.05 from 1.07.

“We would not be surprised if tariffs would push the dollar below parity versus the euro,” says Madsen.

• British pay growth grew more than forecast in the 3 months to October.

• Markets expect only two BoE rate cuts by the end of 2025. 

• US business activity in the services sector surged in December.

The GBP/USD price analysis paints a bright future for the pound as UK labor market data shows resilience in the face of high interest rates. Meanwhile, market participants remained cautious ahead of policy meetings in the UK and the US this week.

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Data on Tuesday revealed that British pay growth grew more than forecast in the 3 months to October. Notably, average weekly earnings minus bonuses jumped to 5.2%, beating estimates of 5.0%. The upbeat figures further clouded the outlook for rate cuts in the UK. After the report, markets expected only two rate cuts by the end of 2025. As a result, the pound surged, recovering from last week’s lows. 

Although the labor market showed resilience, data last week revealed a contraction in the economy. Markets and policymakers remain cautious about the outlook for monetary policy as they await the impact of the new UK government budget. 

Meanwhile, traders expect the Bank of England to keep rates unchanged this week. However, they will focus on messaging about the future. On the other hand, the Fed will also hold its meeting and likely cut rates by 25-bps. However, data in the previous session revealed a surge in business activity in the services sector, showing continued economic resilience. At the same time, market participants have slashed bets for Fed rate cuts next year.

GBP/USD key events today

• US core retail sales m/m
• US retail sales m/m

GBP/USD technical price analysis: Bulls challenge the 30-SMA resistance

On the technical side, the GBP/USD price has pulled back to retest the 30-SMA as resistance after recently reversing to the downside. Sentiment shifted to bearish after the price broke below its bullish trendline. However, the decline paused after reaching the 0.618 Fib retracement level. Here, bulls resurfaced to challenge the new direction. 

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Bulls will take back control and aim for the 1.2800 resistance level if the price breaks above the SMA. Such an outcome would also lead to a continuation of the previous bullish trend. On the other hand, if the SMA holds firm, GBP/USD will bounce lower to retest the 0.618 Fib level. A break below this level would make a new low, continuing the downtrend.

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Created on December 17, 2024

• During the early hours on Monday, the US dollar has rallied rather significantly against the Japanese yen, breaking above the 154 yen level.
• That being said, we are a little bit stretched at this point, and we do have the Bank of Japan and the Federal Reserve both with interest rate decisions this week.
• Now, while both of those are known quantities as far as what they are going to do the real question will be what’s in the statement and the press conferences.

I do believe longer term that the US dollar continues to rally against the Japanese yen. But let’s be honest here, it would not be a real stretch to see people taking profit heading into the central bank announcement, especially into the Federal Reserve one, because while Jerome Powell is expected to announce a 25 basis point rate cut. The reality is we don’t really know what he’s going to say in the press conference or what the FOMC says in the statement. As things stand right now, there is an 80% chance priced into the market that the Federal Reserve will remain steady with rates into January. And that will continue to make this a positive swap situation.

People Will Still Want the USD

Because of this, people will prefer to hold dollars. That doesn’t mean we have to go straight up in the air, and we have rallied about 450 pips in fairly short order. So, I look at a pullback as a good thing. It gives you an opportunity of buying cheaper US dollars. But I do think eventually we are going to try to break out above the 156.75 yen level to go look into the all-time high again. I don’t know if we have a huge shot higher. I just think it’s what happens given enough time. Ultimately, I think this is a move that still has some time to go, unless the FOMC shocks everyone.

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Created on December 17, 2024

• The daily analysis of the Euro at this point remains negative overall, and in the EUR/USD pair, I see this market as hanging around the 1.05 level, so this is a market that is going to continue to pay close attention to the area as a magnet for price in general.
• This market has been bouncing around in the same area for a minute, and I think we are simply waiting for the Federal Reserve on Thursday.

The Federal Reserve meeting is expected to present a 25 basis point cut, but the real action will be the press conference and the statement, and what they make traders think the Fed will do going forward. The January meeting is expected to be a “wait and see approach”, so this is going to keep the US dollar strong against many other currencies, but the Euro will be especially weak, as the French had their debt downgraded yet again over the weekend.

Technical Analysis

The technical analysis the EUR/USD currency pair is of course negative from a longer-term standpoint, but recently has been a somewhat neutral situation. The market seems to have a lot of resistance near the 1.06 level, and as a result, I am a seller of signs of exhaustion after rallies, especially near that level. If the market were to fall from here, the 1.04 level should be a support level. Anything below there could bring in another 50 pip drop. Anything below there would be a wipeout. The Thursday meeting reaction will be crucial to tell us where we are going in the future, but between now and then I suspect we see more or less a sideways market.

This market continues to be a sideways one, and I think we have a situation where short-term traders are going to be attracted to this situation, as it has been somewhat predictable for traders to participate in a rangebound environment.

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While the European Central Bank and Swiss National Bank both cut interest rates last week, UK’s sticky services inflation is likely to prevent the Bank of England from following its European counterparts. However, the pound could still fall because of the potential that we could see a more aggressive easing stance by spring of 2025. The GBP/USD will find additional pressure in the event the US dollar extends its rally. Investors are eagerly anticipating what could be the final hurrah for volatility in 2024, with the Federal Reserve, Bank of Japan, as well as the BoE, all poised to reveal their rate decisions and provide outlook for the upcoming year. The GBP/USD forecast remains bearish.

UK PMI data underscores challenges facing the BoE

The UK’s Composite PMI was unchanged in December, although the UK private sector employment showed the fastest decline for nearly four years. The services PMI climbed to a two-month high of 51.4 from 50.4, beating estimates, while the manufacturing PMI hit an 11-month low of 47.3 compared to 48.0 in November. A similar story was also evident for the Eurozone, where the services PMI expanded at a faster pace than expected while the manufacturing once again declined more than forecast.

In the UK, new orders decreased for the first time in 13 months amid widespread reports of weaker business and consumer spending patterns, according the report by S&P Global. This is in part because of the still-strong inflationary pressures in the UK compared to other economic regions – the precise reason why the BoE may well decide cutting rates this week.

The report noted that “Rising salary payments and elevated domestic inflationary pressures continued to push up cost burdens across the private sector in December… the rate of input price inflation accelerated for the second month running to its strongest since April. Manufacturers recorded the steepest rise in purchasing prices since January 2023.”

The latest PMI data comes after Friday’s soft UK growth data, which caused the GBP/USD to slide towards 1.26 handle as the EUR/GBP jumped back up from near 0.82 to above 0.83 and in the process turned positive on the week. The recovery in the EUR/GBP helped to push the EUR/USD back up to $1.05 ahead of this week’s central bank bonanza.

US dollar support ahead of potential hawkish FOMC cut

Last week’s US CPI data brought no unexpected surprises, though the hotter-than-expected PPI did raise a few eyebrows. Even so, traders seem confident in their expectations of a rate cut at the Federal Reserve’s final meeting of the year on Wednesday. With a 25-basis-point reduction now almost fully priced in, the Fed has little room to diverge without causing notable market disruption. The real question is whether the Fed will pause rate cuts in early 2025 or stick to the current pace of 25-basis-point reductions at upcoming meetings. 

Jerome Powell’s comments last month – noting that risks to the labour market had diminished while inflation remained more persistent than anticipated – have fuelled speculation of a hawkish cut. As a result, Powell’s remarks at the post-meeting press conference and the Fed’s updated economic and rate projections will be pivotal in shaping market sentiment.

For my part, I expect the Fed to deliver a hawkish cut. President-elect Trump’s policy plans – featuring immigration controls, tariffs, and both personal and corporate tax cuts – are likely to push the Fed towards signalling a more cautious and measured path of easing through 2025. This should keep the dollar well-supported, leaving the GBP/USD outlook forecast bearish.

Looking ahead to the week: BoE and Fed could influence GBP/USD forecast meaningfully

In the week ahead, we will hear from the US Federal Reserve (Wednesday), Bank of England and Bank of Japan (both on Thursday) among others. Of particular importance for the GBP/USD forecast, traders will want to pay close attention to the rate statement and comments from the heads of the BoE and FOMC.

Ahead of Thursday’s Bank of England rate decision, we will have already heard from the Fed and BoJ, both expected to have trimmed rates. Last week, the ECB delivered an expected 25 basis point cut while the SNB surprised with 50.

As mentioned, the BoE is not expected to cut rates even after Friday’s release of poor UK GDP and other macro data. But could we see a surprise cut anyway? That is the key risk that is not priced in. Influencing the BoE’s decision, we will still have UK wages and CPI data on Tuesday and Wednesday, respectively.

GBP/USD technical analysis

Source: TradingView.com

From a technical standpoint, the GBP/USD forecast is leaning bearish again after rates hit resistance at around the 1.28 handle last week.

For now, key short-term resistance lies around the 1.2715/20 level after we broke decisively below this point last week. This may well have opened the door for a drop below the 1.2600 zone. Beneath that, the psychologically significant 1.25 level comes into focus, which previously acted as support after a brief dip to November’s low of 1.2487.

As before, the next big resistance above the 1.2715/20 area to watch is in the 1.2800–1.2870 range. This area has served as both support and resistance in the past and coincides with the 200-day moving average, making it a critical level to monitor the cable were to make a recovery in the week ahead.

— Written by Fawad Razaqzada, Market Analyst

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• Business activity in the UK stalled in December.

• Prices charged by UK companies accelerated at the fastest rate in nine months.

• Traders are almost fully pricing a 25-bps Fed rate cut this week.

The GBP/USD outlook shows a recovery from Friday’s lows after UK PMI data revealed accelerating price pressures. However, the long-term outlook for the pair remains bleak amid dollar strength and a stalled UK economy. 

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Data on Monday showed that business activity in the UK stalled in December. The flash composite PMI held at 50.5, slightly below the forecast of 50.7. However, the report also showed that prices charged by companies accelerated at the fastest rate in nine months, indicating a spike in inflation. Market participants focused on this as it might keep the Bank of England cautious. 

However, other data on Friday revealed that the UK economy unexpectedly contracted in October. Therefore, the outlook for the economy remains uncertain. The BoE will hold its policy meeting on Thursday, and markets expect policymakers to keep rates unchanged. However, in 2025, things might change if data continues pointing to soft economic demand. 

Meanwhile, the greenback remained steady after a strong week where markets slashed bets for Fed rate cuts in 2025. However, traders are almost fully pricing a 25-bps rate cut this week. 

At the same time, the looming shift in leadership in the US will likely keep the dollar strong. Trump’s policy proposals might come into effect in 2025, boosting the greenback and weighing on the pound. 

GBP/USD key events today

• US flash manufacturing PMI
• US flash services PMI

GBP/USD technical outlook: Price rebounds after meeting the 0.618 Fib

On the technical side, the GBP/USD price has rebounded for the first time since it broke below its bullish trendline. The rebound comes after the price fell to the 0.618 Fib retracement level, which acted as a strong support level. During this decline, the price broke below the 1.2651 support level, which might now act as resistance. 

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Notably, the price trades well below the 30-SMA and the RSI is below 50, a sign that bears are in the lead. Therefore, the downtrend will likely continue after the brief recovery. The price might reverse at the 1.2651 level or continue to the 30-SMA before dropping. A continuation of the downtrend will allow bears to target a major support level at 1.2500.

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• USD/JPY advances beyond the 154.00 mark, dismissing stronger-than-expected Japanese Flash PMIs for December.
• Technical analysis highlights a bullish trend with the pair clearing key technical barriers, including the 200-day SMA and Kijun-Sen.
• Potential resistance lies at the November 20 high of 155.89; supports are positioned at the Kijun-sen at 152.69 and further at 152.10-11.

The USD/JPY extended its gains as the Japanese Yen (JPY) remains the laggard in the G10 FX complex. Although Japan’s Jibubank Flash PMIs for December improved, traders ignored the data. The pair trades above the 154.00 figure, a level last seen in November 26.

USD/JPY Price Forecast: Technical outlook

the USD/JPY continued to extend its gains, past the 200-day Simple Moving Average (SMA) and the Kijun-Sen, opening the door to clear 153.00 and the previously mentioned 154.00.  

Momentum favors further USD/JPY upside as depicted by the Relative Strength Index (RSI), which aims higher.

The first resistance would be the November 20 daily high at 155.89. A breach of the latter will expose 156.00, followed by the November 15 swing high of 156.75. Conversely, if USD/JPY tumbles below 154.00, the first support is the Kijun-sen at 152.69, followed by the Senkou Span A at 152.21. if surpassed, the next support would be the confluence of the 50 and 200-day SMAs at 152.10-11

USD/JPY Price Chart – Technical outlook

Created on December 16, 2024

• The downward trend of the EUR/USD currency pair remains the strongest, and the 1.05 support will continue to be a positive momentum for bears.
• It is preparing for stronger losses if the results of US economic releases this week come stronger than expected, along with paying attention to the US Federal Reserve’s announcement.
• This is ahead of the Christmas holidays and investors stopping their investment portfolios during the holidays.
• Last week, the Euro-US Dollar’s losses extended to the 1.0453 support level before closing the week’s trading stable down around the 1.0502 level.

The European Central Bank cuts interest rates and promises more

Last week, for the third consecutive meeting, the European Central Bank cut interest rates, indicating more cuts during 2025, as inflation approaches 2% and the European economy struggles amid economic and political uncertainty led by the bloc’s largest economies. In a sign of its changing stance, the ECB dropped the wording of its statement, saying policy would remain “sufficiently restrictive” for as long as necessary.

The ECB’s announcement comes at a sensitive time as investor and market sentiment towards the eurozone’s economic recovery is fragile and worsening as the bloc’s largest economies – Germany and France – are leading the economic slowdown and political uncertainty. This has weakened the eurozone’s economic growth forecast for 2025. Consequently, the chances of further interest rate cuts by the ECB in upcoming meetings are stronger. Overall, the euro’s path will be monitored by the future of the German elections and the treatment of the deficit in France, which has weakened France’s credit rating to negative.

Will the Euro Price Rise in the Coming Days?

According to licensed trading companies and forex analysts’ forecasts, we do not expect the euro price to rise in the coming days, and any opportunities for an upward rebound may be targets for new sales. In addition to the political and economic concerns of the Eurozone, Trump’s upcoming policies will affect the performance of the Eurozone economy, which is internally struggling and externally affected by Trump’s trade wars. The bloc’s economy relies on exports to the outside world. In addition, the fate of the German elections and its handling of the deteriorating economic situation, as well as the improvement in French deficit figures, will remain under the watchful eye of investors and markets to find opportunities for the euro to recover.

Trading Tips:

The Euro-Dollar price may remain bearish and below the 1.05 support, which warns of a strong technical downward move coming if the political and economic pressures on the Euro increase, in addition to the future of US policy under Trump’s leadership.

The US Central Bank may cut interest rates cautiously

This week, all eyes will be on the US Federal Reserve’s monetary policy meeting, during which policymakers are expected to push for a quarter-point cut in US interest rates. However, Deutsche Bank AG and BNP Paribas expect no further action by the Federal Reserve this year. Monetary easing is also expected to slow more in 2025 than officials expected three months ago, with most economists expecting only three US interest rate cuts in 2025.

EUR/USD Analysis Today:

You should take into account that the downward path of the Euro against the US Dollar EUR/USD will become stronger as long as it is technically stable below the psychological support of 1.0500. If the results of important economic data and events this week are in favour of the strength of the dollar, expect the date of the parity price for the Euro Dollar to approach, and technically this may happen if the bears move the currency pair to the support levels of 1.0420 and 1.0300 first. In contrast, and on the same time frame, the daily chart will not witness an initial break of the downward trend without rebounding above the resistance levels of 1.0765 and 1.0830, respectively.

In general, we still prefer to sell the Euro Dollar from every upward level. Furthermore, without risk and activating profit limit and stop loss orders to ensure the safety of the trading account from any sudden price reversals.

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