• The Federal Reserve delivered as expected, foresees two rate cuts in 2025.
• The Bank of England will announce its decision on monetary policy early on Thursday.
• GBP/USD approaches the 1.2600 mark after gaining near-term bearish traction.

The British Pound found near-term support earlier in the day, leading to GBP/USD reaching an intraday high of 1.2725. The trigger was the United Kingdom (UK) Consumer Price Index (CPI), which rose 2.6% on a yearly basis in November after printing at 2.3% growth in October, according to the data released by the Office for National Statistics (ONS) on Wednesday.

Core CPI (excluding volatile food and energy items) rose by 3.5% YoY in November, compared to a 3.3% increase in October while below the market consensus of 3.6%. Services inflation stayed unchanged at 5.0% YoY in November.

The pair held above 1.2700 afterwards, then collapsed after the United States (US) Federal Reserve (Fed) announced that it lowered the policy rate, federal funds rate, by 25 basis points to the range of 4.25%-4.5%.

The Fed made minor changes to its policy statement from the November meeting. Still, the dot-plot shows policymakers foresee now just two rate cuts in 2025, resulting in a hawkish cut that boosted demand for the US Dollar in a risk-averse environment.

Created on December 18, 2024

• As previously anticipated, the EUR/USD pair has maintained a downward trend, stabilizing around and below the 1.05 support level, confirming the strong dominance of bears in the market.
• At the beginning of today’s crucial Wednesday trading session, the Euro-Dollar pair is stabilizing around the 1.0485 support level.
• Today, the primary focus will be on the release of Eurozone inflation figures and the US Federal Reserve’s policy announcement.

Uncertainty Surrounding France and Germany Weighs on the Euro

According to licensed trading platforms, the Euro continues to be negatively impacted against other major currencies due to the political and economic uncertainty of the Eurozone’s largest economies – Germany and France – at a time when the bloc’s economy is generally weak. The European Central Bank has been forced to ease its monetary policy. The latest setback for the Euro came from Germany, where German Chancellor Olaf Scholz lost a confidence vote, leading to elections likely to be held on February 23. In France, new French Prime Minister François Bayrou must quickly form a government and assemble a 2025 budget.

European Stocks Under Selling Pressure

During yesterday’s trading, according to stock trading platforms, European stock markets stumbled amid weak investor sentiment and anticipation of the release of Eurozone inflation figures and the US Federal Reserve’s policy decision. According to the trading, the Eurozone STOXX 50 index fell by 0.1% to 4943 and the STOXX 600 index for all European stocks fell by 0.4% to 514.

The most notable performance was the decline of financial company stocks, with shares of Santander, Intesa Sanpaolo, and BBVA losing between 4% and 1.5%. Meanwhile, low oil prices caused shares of TotalEnergies and Eni to decline by 1.2% and 2.4%, respectively. On the other hand, ASML shares closed with a sharp rise of 2%. Overall, European stock indices recorded lower performance in 2024 compared to US stock indices, which benefited from their high focus on technology stocks. The STOXX 600 index rose by only 7.2% in 2024 compared to gains of the S&P 500 index, which reached 27%.

Trading Tips:

The euro is under pressure and could continue for some time, so any bounce higher could be a chance to sell the euro again this week, which will be fateful for the euro’s closings in 2024.

The German economy is far from exiting the recession.

It is not surprising to see another gloomy economic reading from Germany, but better days are ahead, according to one economist. A leading sentiment survey in Germany shows that the Eurozone’s largest economy is no closer to exiting the recession, although 2025 brings hope as the new government has no choice but to invest. According to economic calendar data, the German Ifo business climate index fell to 84.7 points in December, down from 85.6 points in November. This was the lowest level since May 2020 and the decline was due to more pessimistic expectations, although German companies assessed the current situation as better.

Overall, the report confirms the chronic weakness of the German economy:

Manufacturing: The index declined significantly, with German companies expressing less satisfaction with their current business and significantly more pessimistic expectations. Also, Order books deteriorated, and production cuts were announced.

Services sector: The business climate index deteriorated due to more sceptical expectations, but the current situation was assessed as somewhat better. The restaurant sector reported positive Christmas business, while the transport and logistics sector are concerned about the coming months.

Understanding the IFO Survey: The German IFO business climate index is based on nearly 9,000 monthly responses from companies in manufacturing, services, trade and construction. Through it, companies provide assessments of their current business situation and their expectations for the next six months. Finally, the index is calculated using the balance of responses and normalized to the average of 2015.

EUR/USD Analysis Today:

We still emphasize the strength of the downward trend in the Euro against the US Dollar EUR/USD and that approaching around and below the support level of 1.05 continues to stimulate more bear control over the trend. Therefore, If the US economic releases and the Federal Reserve Bank announcement are in favour of the strength of the dollar. More selling pressures may collide with the support levels of 1.0420 and 1.0300 respectively. From there, technical indicators may start giving strong oversold signals, led by the Relative Strength Index (RSI) and the momentum indicator.

Conversely, if the data supports the Euro, the downward trend of the Euro-Dollar will not be broken without returning to the resistance levels of 1.0665 and 1.0800, respectively. Overall, we still adhere to the strategy of selling the Euro-Dollar but without taking risks and activating take-profit and stop-loss orders to ensure the safety of the trading account from any sudden price reversals.

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• GBP/USD trades below 1.2700 in the European morning on Wednesday.
• Annual CPI inflation in the UK rose to 2.6% in November as expected. 
• The Fed will announce the interest rate decision and publish the revised dot plot.

After closing the second consecutive day in positive territory on Tuesday, GBP/USD edges lower early Wednesday and trades below 1.2700. Investors eagerly await the Federal Reserve’s (Fed) monetary policy announcements.

The UK’s Office for National Statistics reported in the European morning that annual inflation in the UK, as measured by the change in the Consumer Price Index (CPI), rose to 2.6% in November from 2.3% in October, as anticipated. The core CPI rose 3.5% on a yearly basis, up from the 3.3% increase recorded in October but below analysts’ estimate of 3.6%. These figures failed to trigger a noticeable market reaction.

The Fed is set to cut the policy rate by 25 basis points (bps) to the range of 4.25%-4.5% following the last meeting of the year. As such a decision is already fully priced in, it is unlikely to influence the US Dollar’s (USD) valuation in a significant way. Instead, investors will pay close attention to the revised Summary of Economic Projections (SEP), the so-called dot plot.

In case the dot plot suggests that policymakers project at least a rate reduction of 100 bps in 2025, the USD is likely to struggle to find demand. On the flip side, GBP/USD could turn south if the SEP shows that policymakers foresee less than 100 bps of rate cuts next year.

Starting at 19:30 GMT, Fed Chairman Jerome Powell will deliver the policy statement and respond to questions in a press conference. If Powell notes there is growing uncertainty surrounding the inflation outlook on potential tariffs, investors could see this as a sign that the Fed will adopt a more gradual approach to policy easing, boosting the USD.

GBP/USD Technical Analysis

GBP/USD faces immediate resistance at 1.2700 (100-period Simple Moving Average (SMA), Fibonacci 38.2% retracement of the latest downtrend) ahead of 1.2730 (200-period SMA) and 1.2750 (Fibonacci 50% retracement).

Looking south, first support could be spotted at 1.2670 (20-period SMA) before 1.2620 (Fibonacci 23.6% retracement).

• The USD/JPY pair rebounded as markets awaited a hawkish FOMC policy meeting.

• The US retail sales report showed an unexpected jump of 0.7% in November.

• Japanese exports increased faster than expected in November.

The USD/JPY forecast shows a rebound hours before the FOMC policy meeting. The dollar recovered after upbeat sales data pointed to continued resilience in the US economy, while the yen eased ahead of the Bank of Japan policy meeting. 

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After dipping in the previous session, the USD/JPY pair rebounded as markets awaited a hawkish FOMC policy meeting. Traders expect the central bank to lower borrowing costs by 25-bps. However, policymakers might take a hawkish stance on the future due to economic resilience and looming Trump policy changes. 

The US economy has remained strong, with most economic reports beating expectations. On Tuesday, the US released its retail sales report, which showed an unexpected jump of 0.7% in November. Meanwhile, economists had predicted a 0.6% increase. This resilience has led to more cautious remarks by policymakers that have supported the dollar in recent weeks. 

At the same time, the Trump administration will take office in January. Markets expect policy changes that will likely support the economy and boost inflation. Therefore, the Fed might have to assume a gradual pace for rate cuts. 

In Japan, data on Wednesday revealed that exports increased faster than expected in November. Nevertheless, it was not enough to change the policy outlook. Markets expect the Bank of Japan to maintain rates this week, which might weaken the yen. However, a hawkish outlook from policymakers could boost the currency.

USD/JPY key events today

• Federal Funds Rate
• FOMC Economic Projections
• FOMC Statement
• FOMC Press Conference

USD/JPY technical forecast: Bears retest the 30-SMA support

On the technical side, the USD/JPY price is bouncing higher after retesting the 30-SMA as support. The bullish bias is strong since the price has traded above the SMA since the trend reversed. At the same time, the RSI has stayed above 50 in bullish territory. 

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Bulls paused near the 154.00 key resistance level, and bears triggered a pullback to retest the 30-SMA support. If bulls remain in charge, the price will soon breach the 154.00 resistance to target the next hurdle at 156.00. Meanwhile, if the 154.00 holds firm, bears might breach the SMA to retest the 152.00 support level.

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• EUR/USD trades in a tight range at around 1.0500 on Wednesday.
• The Fed is set to lower the policy rate by 25 basis points.
• The revised Summary of Economic Projections (SEP) could trigger a big market reaction.

EUR/USD registered small losses on Tuesday but managed to stabilize near 1.0500 in the European morning on Wednesday. The Federal Reserve’s (Fed) interest rate decision and revised Summary of Economic Projections (SEP) could cause the pair to break out of its trading range.

The risk-averse market environment helped the US Dollar (USD) hold its ground on Tuesday and made it difficult for EUR/USD to gain traction.

Later in the day, the Fed is widely expected to lower the policy rate by 25 basis points (bps) to the range of 4.25%-4.5%. Since such a decision is already priced in, it is unlikely to trigger a noticeable market reaction. Instead, market participants will scrutinize the details of the revised Summary of Economic Projections (SEP), the so-called dot plot.

In case the dot plot points to a rate reduction of 100 bps or more in 2025, the USD is likely to come under pressure in the near term. On the other hand, the USD could gather strength and force EUR/USD to stay on the back foot if the revised SEP highlights less than 100 bps of rate cuts next year.

Fed Chairman Jerome Powell’s comments on the policy outlook will also be watched closely in the post-meeting press conference starting at 19:30 GMT. If Powell adopts a cautious tone regarding further policy easing, citing the uncertainty surrounding the inflation outlook on President-elect Donald Trump’s proposed tariff policies, the USD is likely to stay resilient against its rivals heading into the holidays.

EUR/USD Technical Analysis

EUR/USD faces stiff resistance at 1.0520, where the 100-period Simple Moving Average (SMA) on the 4-hour chart, the 50-period SMA and the Fibonacci 23.6% retracement of the latest downtrend meet. Once the pair rises above this level and starts using it as support, it could target 1.0575 (200-period SMA) and 1.0600 (Fibonacci 38.2% retracement).

Looking south, first support could be spotted at 1.0440 (static level), 1.0400 (end-point of the latest downtrend) and 1.0330 (November 22 low).

Created on December 18, 2024

• The US dollar initially rallied a bit during the early part of Tuesday but has given back those gains to show signs of weakness.
• Weakness is probably a strong word here. I really would suggest that it’s probably more or less a little bit of profit taking heading into the FOMC meeting.

After all, we have bounced about four handles along the way, but now traders will be focusing on whatever it is that Jerome Powell has to say when it comes time to the press conference, the decision itself, coming out of the United States should be a 25 basis point cut, but where we’re going from there is the big question.

January and Beyond

Fed Fund futures markets now have an 80% chance of the Federal Reserve sitting still in January, meaning that this will still continue to be a significant carry trade pair. However, we also have the Bank of Japan early on Thursday, and they’ll have something to say about this as well. I think because of this, it’s probably best to leave this pair alone in the short term, but I do like the idea of buying the dip. I’ll be watching closer to the 50-day EMA near the 152 yen level.

Ultimately this is a market that has been somewhat lively as of late and I think we are either going to try to find some type of range, maybe between 150 yen on the bottom and 155 yen on the top, or perhaps this is a pullback before a move higher. I suspect it’s probably the latter of the two as the US dollar, although a little overbought against quite a few currencies out there, is probably in the middle of swallowing just about everything. Next day or two though could be a bit difficult.

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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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