Created on December 12, 2024

• Stronger US inflation figures have contributed to selling pressure on the EUR/USD pair, with losses extending below the 1.0500 support level to around 1.0480, where it is currently trading.
• This comes amid cautious anticipation of another major event that will impact the performance of the Euro-Dollar, namely the announcement of the European Central Bank.

Euro-Dollar Awaits ECB Announcement

According to reliable trading platforms, the EUR/USD pair may remain in a cautious downward waiting position until the announcement of the European Central Bank today. In general, financial markets expect another 25-basis point cut from the European Central Bank, which would reduce the rate from 3.25% to 3.00% following a similar 25 basis point cut in October. Overall, if the European Central Bank implements another interest rate cut this month, the Euro is likely to weaken against other major currencies due to further monetary policy easing within the bloc. Ahead of today’s event, the Euro’s performance has struggled to attract investor interest due to a mix of mixed economic data and generally positive market sentiment, which tends to diminish the attractiveness of the single European currency.

As a safe-haven asset, the Euro often loses strength when market conditions are optimistic, making it less attractive compared to higher-risk currencies.

Gains in European Stock Markets Did Not Support the Euro for Long

According to stock trading company platforms, the Euro Stoxx 50 (SX5E) index has seen an eight-day consecutive upward trend. This has been helping to support the Euro against the US Dollar. According to trades, the SX5E index has risen for eight consecutive days, outperforming the SPX index throughout those days, a feat we have seen only once before in more than 25 years. Overall, the rise in European equities has led to an exceptionally high information ratio for the SX5E index, indicating strong risk-adjusted returns. The rise was broad-based, encompassing most European sectors and positively impacting the exchange rate of the Euro against the Dollar (EUR/USD).

Why Have European Stocks Risen Recently?

The rise in European stock prices has been observed despite the economic and political uncertainty of the largest economies in the Eurozone. Barclays attributed this rise in Eurozone equities to several key factors:

• Significantly bearish position: The European market had a pessimistic outlook on European equities in the period leading up to this period. It is likely that these negative sentiments, resulting from concerns about tariffs, growth prospects, and political instability, created an environment where many of the potential downside risks had already been priced into the market.
• Technical pressure: The SX5E’s eight-day winning streak, coupled with its outperformance of the S&P 500 over the same period, is a statistically rare phenomenon, having only been observed once before in over 25 years. This suggests a technical pressure, amplified by short selling, particularly by commodity trading advisors (CTAs).
• Possibility of interest rate cuts by the European Central Bank: Barclays highlights the increasingly dovish stance of the European Central Bank as a supportive factor for European equities. Accordingly, the possibility of interest rate cuts, amid political uncertainty and weak growth, provides a hedge against downside risks in the near term. For the EUR/USD exchange rate, interest rate cuts are typically seen as a headwind because they mean lower Eurozone bond yields. However, a decline in European stock prices may limit any decline.
• Positive response to news: While the positive news was gradual, the market responded positively, likely due to previous bearish sentiments. The avoidance of worst-case scenarios and any positive developments, even if minor, contributed to the upward momentum.

Trading Tips:

The EUR/USD price is increasing in the bearishness ahead of today’s ECB announcement. Furthermore, be cautious and do not rely on what is expected from the bank and wait for the reaction to the announcement to move towards strong trading opportunities.

EUR/USD Analysis Today:

By examining the performance of the Euro-US Dollar EUR/USD price, it is confirmed that the general downward trend is stronger and may remain as long as the price is stable around and below the psychological support level of 1.0500. As we mentioned before and I confirm now, expectations for the future parity price of the Euro Dollar may strengthen if the bears move first towards the support levels of 1.0435 and 1.0320 respectively. At the same time, the technical indicators will move towards strong oversold levels. Led by the Relative Strength Index and the MACD indicator. In contrast, to achieve an initial break of the downward trend, the bulls must move the currency pair towards the resistance levels of 1.0670 and 1.0830 respectively. Also, the Euro Dollar will focus on US data led by the weekly jobless claims and the inflation reading of the Producer Price Index.

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EUR/USD looks to the ECB rate decision

• ECB is likely to cut rates by 25 bps
• The focus will be on rhetoric and staff projections
• US PPI & jobless claims are due
• EUR/USD trades between 1.05 – 1.06

EUR/USD steadies above 1.05 after 4-days of losses, amid USD weakness and ahead of the ECB rate decision.

We expect the ECB to cut rates by 25 basis points, bringing them to 3%; however, a 50-basis-point cut cannot entirely be excluded. In fact, the market would likely focus more on communication. The updated staff forecast could see the inflation target being reached sooner next year, which could enable the ECB to cut rates by 25 basis points but with a more dovish tone.

Recent data, including the composite PMI at a 10-month low and political uncertainty in Germany and France affecting economic sentiment, also give the ECB reason to adopt a more dovish stance.

The market is pricing in 150 basis points worth of cuts between now and the end of next year. A dovish-sounding Christine Lagarde could fuel rate-cut bets, pulling EUR lower.

The USD is easing but continues to trade in a narrow range, following US CPI data yesterday, which supports the view the Fed will cut rates next week and ahead of PPI data today.

PPI is expected to rise to 2.6%, YoY up from 2.4%. This comes after CPI rose to 2.7% from 2.6%.

Signs that disinflation is stalling underpin the USD. While a December rate cut looks certain, a more gradual pace of cuts is likely next year. 

EUR/USD forecast – technical analyst

EUR/USD fell from 1.12 in late September to a low of 1.0330 on November 2025. The price is currently consolidating between 1.05 to 1.06 and is once again testing the lower band of this holding pattern.

Sellers must take out 1.05 to extend the longer-term bearish trend towards 1.04 and 1.0330.

However, should 1.05 hold, buyers will look to extend the gain to 1.06. Beyond here, 1.07 comes into play.

GBP/USD stays in range ahead of US PPI data & jobless claims

• US CPI rose to 2.7% YoY from 2.6%
• US PPI is expected to rise to 3.2% from 3.1%
• GBP/USD hovers around 1.2750, just below the 200 SMA

GBP/USD continues to trade in a tight range around the 1.2750 level following US CPI data and ahead of more US stats. The UK economic calendar is quiet, leaving the USD in the driving seat.

US CPI rose to 2.2%, up from 2.6%, in line with expectations, while core CPI held steady at 3.3%. Despite the increase in inflation, the data was in line with forecasts, giving the green light to a December rate cut.

According to the CME Fed watch tool, the market is pricing in a 95% chance of a 25 basis point cut at the FOMC meeting next week, up from 85% ahead of the meeting.

Today, attention is on US PPI inflation, which is expected to rise. PPI is forecast to rise to 3.2%, up from the 3.1% previously.

US jobless claims data will also be under the spotlight. It is expected to show the ongoing resilience in the US labour market, with 220K initial claims forecast down from 224 K.

The pound has been supported by expectations that the Bank of England will cut interest rates at a slower pace than its major central bank peers. The BoE is expected to leave rates unchanged in the meeting next week, and the market is only pricing in 60 basis points worth of cuts between now and the end of next year.

The central bank has adopted a more hawkish tone following the New Labour government’s budget, which is seen as inflationary.

There is no high impact UK economic data today. Attention will be on GDP figures tomorrow.

GBP/USD forecast – technical analyst

GBP/USD extended its recovery from 1.25 rising out of the multi-month descending channel, but the recovery has stopped short below the 200 SMA.

Buyers will look to extend the recovery above the 200 SMA1.2825 towards 1.2875 static resistance and 50 SMA. A rise above her brings 1.29 and then the key 1.30 level into play.

Failure to retake the 200 SMA could see sellers retest the 1.27, the weekly low ahead of 1.2630 the December low and 1.26. A breakdown here brings 1.25 into focus.

Created on December 12, 2024

• Since the start of this important trading week, the Pound Sterling has managed to gain against other major currencies, even in the absence of any significant impactful British data.
• Furthermore, its gains came thanks to positive trading conditions.
• In the case of the GBP/USD pair, it rose to the resistance level of 1.2798 before settling around 1.2738 at the time of writing this analysis.

As a currency that has become more sensitive to risk, the Pound Sterling benefited from the optimistic market sentiment at the beginning of the week. However, with little other support, the Pound Sterling’s gains were relatively modest, with the Pound Sterling primarily rising against safer currencies rather than its riskier counterparts.

Dollar Price Affected by US Inflation Figures

According to licensed trading platforms, the US dollar has retreated from its previous highs after US inflation rates came in line with expectations. According to economic data results, the US Consumer Price Index rose to 2.7% in November, as expected, but this was higher than 2.6% in October, marking the fifth consecutive increase.

It was also announced that the US Consumer Price Index rose by 0.3% on a monthly basis, which is also in line with expectations. The core Consumer Price Index recorded 0.31% in November, with the 12-month rate remaining at 3.3%, which is in line with analysts’ forecasts. Overall, the main conclusions are that US inflation is proving to be stubborn, which will limit the pace of the Federal Reserve’s interest rate cuts in 2025. However, the Federal Reserve is likely to cut interest rates again next week as the numbers were in line with expectations.

Pound Sterling Supported by China’s Policies

China’s stimulus measures this week have supported risk appetite and expectations of further cuts in Chinese interest rates. There were reports that the Politburo had changed its 2025 forecast for China’s monetary policy from cautious to appropriately loose. This would be the first official change in language since 2010. As a result, hopes for political stimulus have supported commodities and British stocks, which in turn helped support the Pound Sterling. However, there are still significant geopolitical pressures and uncertainties.

US Interest Rate Expectations

After financial markets and investors reacted to the US jobs and inflation announcements, financial markets are expecting another US interest rate cut by the Federal Reserve next week, with markets pricing in a near 90% chance of a 25bp cut. The US Federal Reserve will generally enter a blackout period this week, but there will be increased focus on the 2025 outlook. President-elect Trump has recently indicated that he will not ask Fed Chairman Powell to resign, although there is an element of ambiguity as he has stated that Powell may resign if asked. As such, uncertainty may limit the scope for buying the US dollar.

Trading Tips:

It seems clear that the performance of the British pound is waiting for more stimulus so that it does not get sold and lose its recent gains, as the sterling is a risk currency

Technical Analysis for the GBP/USD pair today:

According to the performance on the daily chart, the GBP/USD pair remains in a neutral position with an upward bias. The bulls’ success in moving towards the resistance levels of 1.2840 and the psychological resistance of 1.3000 will strengthen the upward trend. Conversely, and on the same time frame, a return to the vicinity of the 1.2610 support will undermine the current upward outlook. The Relative Strength Index is in a neutral position, confirming the balance between bears and bulls. Technically, the MACD is turning upwards but still needs more gains to confirm. Today, GBP/USD will be affected by the announcement of weekly US jobless claims and the reading of the Producer Price Index. Furthermore, this is in addition to the extent of investor risk appetite.

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The Japanese Yen might not see a strong 2025 after all.

Analysts at ING Bank see a route to 160 in Dollar-Yen (USD/JPY) over the next year, disappointing a consensus looking for Yen outperformance.

Currently, market forward points show the market looks for USD/JPY to move towards the mid-140s next year, in a steady trend of Yen appreciation.

Part of this assumption rests on the view that the Bank of Japan will raise interest rates in a world where everyone else is cutting, creating a favourable interest rate convergence story for JPY.

ING’s economists maintain that the Bank of Japan will hike by 25bp on 20 December, and further hikes will follow, but these won’t put a rocket under the Yen as was seen earlier this year when the Bank raised rates for the first time in years.

“Recall that it was the hawkish hike in July that prompted the disorderly unwind of the carry trade. This time, however, the market is not as short yen as it was in July and the BoJ has probably learned its communication lesson. We do, however, look for two further 25bp rate hikes next year,” says ING.

Bank of Japan hikes won’t be able to close the gap with U.S. yields, which will remain elevated as the Trump 2.0 era commences.

“Our forecast profile of a higher USD/JPY is largely down to the fact that we expect the US 10yr Treasury to end 2025 at 5.50%. There is some talk of a ‘Mar-a-Lago accord’ to weaken the US dollar. We think Trump’s policies are dollar positive, but if Washington’s dollar policy were to make an impact, especially if US growth disappoints, we suspect USD/JPY would lead $ lower,” says ING.

The bank forecasts USD/JPY at 153 in one month, 155 in three months, 157 in six months and 160 in 12 months.

EUR/USD looks to the ECB rate decision

• ECB is likely to cut rates by 25 bps
• The focus will be on rhetoric and staff projections
• US PPI & jobless claims are due
• EUR/USD trades between 1.05 – 1.06

EUR/USD steadies above 1.05 after 4-days of losses, amid USD weakness and ahead of the ECB rate decision.

We expect the ECB to cut rates by 25 basis points, bringing them to 3%; however, a 50-basis-point cut cannot entirely be excluded. In fact, the market would likely focus more on communication. The updated staff forecast could see the inflation target being reached sooner next year, which could enable the ECB to cut rates by 25 basis points but with a more dovish tone.

Recent data, including the composite PMI at a 10-month low and political uncertainty in Germany and France affecting economic sentiment, also give the ECB reason to adopt a more dovish stance.

The market is pricing in 150 basis points worth of cuts between now and the end of next year. A dovish-sounding Christine Lagarde could fuel rate-cut bets, pulling EUR lower.

The USD is easing but continues to trade in a narrow range, following US CPI data yesterday, which supports the view the Fed will cut rates next week and ahead of PPI data today.

PPI is expected to rise to 2.6%, YoY up from 2.4%. This comes after CPI rose to 2.7% from 2.6%.

Signs that disinflation is stalling underpin the USD. While a December rate cut looks certain, a more gradual pace of cuts is likely next year. 

EUR/USD forecast – technical analyst

EUR/USD fell from 1.12 in late September to a low of 1.0330 on November 2025. The price is currently consolidating between 1.05 to 1.06 and is once again testing the lower band of this holding pattern.

Sellers must take out 1.05 to extend the longer-term bearish trend towards 1.04 and 1.0330.

However, should 1.05 hold, buyers will look to extend the gain to 1.06. Beyond here, 1.07 comes into play.

GBP/USD stays in range ahead of US PPI data & jobless claims

• US CPI rose to 2.7% YoY from 2.6%
• US PPI is expected to rise to 3.2% from 3.1%
• GBP/USD hovers around 1.2750, just below the 200 SMA

GBP/USD continues to trade in a tight range around the 1.2750 level following US CPI data and ahead of more US stats. The UK economic calendar is quiet, leaving the USD in the driving seat.

US CPI rose to 2.2%, up from 2.6%, in line with expectations, while core CPI held steady at 3.3%. Despite the increase in inflation, the data was in line with forecasts, giving the green light to a December rate cut.

According to the CME Fed watch tool, the market is pricing in a 95% chance of a 25 basis point cut at the FOMC meeting next week, up from 85% ahead of the meeting.

Today, attention is on US PPI inflation, which is expected to rise. PPI is forecast to rise to 3.2%, up from the 3.1% previously.

US jobless claims data will also be under the spotlight. It is expected to show the ongoing resilience in the US labour market, with 220K initial claims forecast down from 224 K.

The pound has been supported by expectations that the Bank of England will cut interest rates at a slower pace than its major central bank peers. The BoE is expected to leave rates unchanged in the meeting next week, and the market is only pricing in 60 basis points worth of cuts between now and the end of next year.

The central bank has adopted a more hawkish tone following the New Labour government’s budget, which is seen as inflationary.

There is no high impact UK economic data today. Attention will be on GDP figures tomorrow.

GBP/USD forecast – technical analyst

GBP/USD extended its recovery from 1.25 rising out of the multi-month descending channel, but the recovery has stopped short below the 200 SMA.

Buyers will look to extend the recovery above the 200 SMA1.2825 towards 1.2875 static resistance and 50 SMA. A rise above her brings 1.29 and then the key 1.30 level into play.

Failure to retake the 200 SMA could see sellers retest the 1.27, the weekly low ahead of 1.2630 the December low and 1.26. A breakdown here brings 1.25 into focus.

• GBP/USD holds comfortably above 1.2750 in the European morning on Thursday.
• The technical outlook suggests that the pair remains bullish in the near term.
• The pair could face the next stiff resistance at 1.2800.

GBP/USD registered small losses on Wednesday but didn’t have a difficult time holding its ground. The pair trades modestly higher on the day above 1.2750 on Thursday and the technical outlook suggests that the bullish bias remains intact in the near term.

The US Dollar outperformed its major rivals midweek following the inflation report. The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) and the core CPI both increased by 0.3% on a monthly basis, matching market forecasts.

Later in the day, the BLS will publish the Producer Price Index (PPI) data for November and the US Department of Labor will release the weekly Initial Jobless Claims figures. Markets expect the number of first-time applications for unemployment benefits to decline to 220,000 from 224,000. In case this data arrives above 230,000, the USD could come under pressure and help GBP/USD push higher.

Meanwhile, US stock index futures were last seen losing between 0.2% and 0.3%. A bearish opening in Wall Street could cap GBP/USD’s upside in the early American session.

Investors will also pay close attention to the European Central Bank’s (ECB) policy announcements. A dovish ECB surprise, be it a 50 basis points (bps) rate cut, or a 25 bps cut with a dovish policy statement, could trigger a Euro selloff. In this scenario, Pound Sterling could capture capital outflows out of the Euro and stay resilient against the USD.

GBP/USD Technical Analysis

In case GBP/USD continues to trade above 1.2750-1.2760 area, where the Fibonacci 50% retracement of the latest downtrend and the 200-period Simple Moving Average (SMA) are located, it could meet the next resistance at 1.2800 (Fibonacci 61.8% retracement) before targeting 1.2850 (static level).

On the downside, immediate support aligns at 1.2730 (50-period SMA) ahead of 1.2700 (Fibonacci 38.2% retracement) and 1.2670 (100-period SMA).

Created on December 11, 2024

• As previously anticipated, the EUR/USD pair remains under downward pressure near and below the psychological support level of 1.0500.
• This is pending the reaction of financial markets and investors to the announcement of US inflation figures today, which will directly impact market expectations for the future of US Federal Reserve policies.
• Tomorrow, the important European Central Bank announcement will take place.

US Inflation Expectations

The most important data in today’s economic calendar. The announcement of the US consumer price index readings, and the index is expected to rise for the fourth consecutive month. The core CPI reading – without food and energy prices – is expected to record 0.3 percent. With the announcement of consumer prices and the announcement of US producer prices later this week, the complete picture of what the US Federal Reserve’s decision will be next week is formed, and the comparison between them and the numbers that will occur under Trump’s official leadership of the US economy during the year 2025. As is known, Trump’s hostile trade policy supports the rise in inflation rates, which may affect the path of the US Federal Reserve’s policy in the coming months, as a result of which I expect the bank to stop the path of reducing US interest rates.

German Inflation Hits a 4-Month High

According to an official announcement, the annual inflation rate in Germany rose to 2.2% in November 2024, up from 2% in October, in line with initial estimates, and the announcement represents the highest level in four months. According to the announcement, service inflation remained unchanged at 4%, while energy costs declined at a slower pace (-3.7% versus -5.5% in October). At the same time, food inflation slowed to 1.8%, compared to 2.3% in the previous period. On a monthly basis, German consumer prices fell by 0.2%, in line with initial estimates, following a 0.4% increase in October.

Core inflation, which excludes volatile food and energy prices, reached a six-month high of 3% in November. The harmonized inflation rate for the European Union remained at 2.4% annually, confirming the initial estimates. Harmonized consumer prices fell by 0.7% monthly, in line with preliminary data, reversing a 0.4% increase from the previous month.

European stocks halt rally

According to stock trading company platforms, European stock market indices halted a recent upward wave, and according to trades, the Stoxx 50 index declined by 0.7% and the Stoxx 600 index fell by 0.5%, led by a 1.1% decline in industrial stocks. Weaker-than-expected Chinese import and export data affected mining stocks, which fell by 0.8%, and at the same time, investors are cautiously awaiting the announcement of US inflation figures today.

Trading Tips:

The euro-dollar price will remain on a downward path, whatever the US inflation figures today. Cautiously, eyes are turning with the European Central Bank announcement, and selling the euro-dollar is still in place.

EUR/USD Analysis Today:

My technical view of the EUR/USD pair performance has not changed. The overall trend is still downward, and the movement around and below the psychological support level of 1.0500 still supports the bears’ strong control over the trend. Regarding the performance of technical indicators, the RSI is still heading downward, and at the same time, the MACD is strongly bearish, confirming the bears’ opportunity to move towards deeper support levels, the closest of which is currently 1.0435 and 1.0300, which in turn will move the technical indicators towards strong oversold levels and increase expectations towards the future of the Euro-Dollar’s equilibrium price.

On the other hand, and on the same time frame, the daily chart will not witness an initial break of the downtrend without moving towards the resistance levels of 1.0680 and 1.0800 respectively.

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USD/JPY tests the 200 SMA ahead of US CPI

• US CPI is expected to rise 2.7% YoY
• Japanese wholesale inflation rose to 3.7%
• USD/JPY tests 200 SMA resistance

USD/JPY is rising for a third day as Japanese wholesale inflation accelerates ahead of US CPI.

The USD is  rising against its major peers ahead of the highly anticipated US CPI reading, which could provide further insight into the Federal Reserve’s outlook for rate cuts.

Expectations are for CPI to rise to 2.7% YoY up from 2.6%. On a monthly basis CPI is expected to rise 0.2% Meanwhile core inflation is expected to hold steady at 3.3%.

A hotter-than-expected inflation could see the market rein in rate cut expectations for next year. The market is pricing in an 86% probability of a 25 basis point rate cut in December, and are looking at around one rate cut per quarter in 2025.

Japanese corporate goods price index (CGPI), which measures the price companies charge for goods and services, increased 3.7% in November ahead of forecasts of 3.4%, marking the quickest pace no price increase since July 2023

The acceleration in wholesale inflation lifted expectations of a 25 basis point rate hike from the Bank of Japan on December 19 to 27%.

USD/JPY Forecast- technical analysis

USD/JPY has recovered from the 100 SMA support, rising back above 150 and is testing the 200 SMA resistance at 152.00.

Buyers will look to break above this level to test 153.85 the 61.8% Fib retracement of the 162 high and 139.50 low. Above here, 157.10, the 78.6% Fib level comes into play.

Failure to rise above the 200 SMA could see sellers test 150.00, the psychological level, ahead of 148.65, the December low, and the 100 SMA.

Oil rises for a third day on China optimism & ahead of the OPEC report

• A looser monetary policy stance in 2025 lifts the demand outlook
• OPEC’s monthly report to provide supply & demand clues
• Oil trades in a familiar holding pattern.

Oil prices are heading higher for a third straight day, supported by optimism surrounding monetary policy change in China.

On Monday, Chinese authorities signaled they would adopt a looser monetary policy stance in 2025 to support the ailing economy.

The prospect of improved growth in China is helping to brighten the outlook for oil demand. In November, China imports rose for the first time in seven months, up 14% year over year.

Still, any changes to the Chinese monetary policy stance would be unlikely to do much in the case of further trade tariffs brought in by Trump.

Attention is now towards the OPEC monthly report, which could provide further insight into the supply and demand outlook. In previous reports group has highlighted increasing supply from outside of OPEC, possible supply surplus next year.

Separately, API oil inventory data shows that oil inventories rose 499k in the week ending Dec 6. Gasoline inventories rise by 2.85 million barrels. Expectations had been for a 900k increase in oil inventories and 1.7 million in gasoline.

Oil Forecast – technical analysis

Oil continues to consolidate in a familiar range, capped on the downside by 67.50 – 67 zone and o the upside by 71.50-72.50.

The longer-term trend is downward, with oil trading below its falling trendline dating back to September 2023 and its 200, 100, and 50 SMAs.

Sellers will look to take out the 67.50 support zone to test 65.25, the 2024 low, and 63.50, the 2023 low.

Buyers will need to rise above the 50 SMA at 70.50 to extend gains towards 71.50-72.50 zone – above here 75.00 comes into play.

• GBP/USD stays in a consolidation phase near 1.2750 early Wednesday.
• Annual CPI inflation in the US is forecast to rise to 2.7% in November.
• The near-term technical outlook highlight the pair’s indecisiveness.

GBP/USD registered modest gains for the second consecutive day on Tuesday but lost its traction early Wednesday. The pair stays near 1.2750 in the European morning as market focus shifts to the key November inflation report from the US.

The cautious market mood and rising US Treasury bond yields helped the US Dollar (USD) find demand on Tuesday and made it difficult for GBP/USD to stretch higher. Early Wednesday, the USD stays resilient against its rivals as US stock index futures trade mixed.

The Consumer Price Index (CPI) is forecast to rise 2.7% on a yearly basis in November, up slightly from the 2.6% increase recorded in October. The monthly core CPI, which excludes volatile food and energy prices, is expected to increase 0.3%. 

The CME FedWatch Tool currently shows that markets are pricing in a nearly 90% probability of a 25 basis points (bps) Federal Reserve (Fed) rate cut in December. Although inflation figures are unlikely to alter the market pricing of the Fed rate decision in a significant way, a surprise in the monthly core CPI could trigger a reaction in the near term.

In case the monthly core CPI rises 0.5% or more, the USD could gather strength and weigh on GBP/USD. On the other hand, a soft print of 0.2% lower could open the door for a leg higher in the pair.

GBP/USD Technical Analysis

GBP/USD faces a pivot level at 1.2750, where the Fibonacci 50% retracement of the latest downtrend is located. Once that level is confirmed as support, the pair could meet next resistance at 1.2770 (200-period Simple Moving Average (SMA)) before 1.2800 (Fibonacci 61.8% retracement).

Looking south, supports could be spotted at 1.2700 (Fibonacci 38.2% retracement) and 1.2670 (100-period SMA).

The GBP/USD has started to ease back as the dollar continues to make gains against other major currencies. The AUD/USD for example hit a 13-month low overnight, with a dovish RBA and concerns about Chinese demand weighing on the Aussie. Elsewhere, the EUR/USD is again testing waters around the 1.05 level amid speculation that the dollar will retain its yield advantage over the euro and other currencies once Trump’s expected spending spree and tax cuts are delivered next year. In contrast, the GBP/USD has only just started to turn lower again after staging a decent 2.5-week recovery from around 1.25 handle. Showcasing the GBP strength is the struggling EUR/GBP. With the latter testing the 0.82 support area, sterling is therefore trading at its best levels since March 2022 against the euro. But against the dollar, it has been held back. In fact, I reckon there is a good chance we may see the GBP/USD start to head lower again and may even go on to break 1.2500 support, once UK’s services inflation eases more significantly – possibly in early next year. If seen, that would allow the BoE to turn more dovish. So, the GBP/USD outlook remains bearish heading into 2025.

GBP/USD forecast: All eyes on US CPI

It’s been a quiet week on the European data front, with investors firmly focused on two key events: today’s US CPI release, due shortly at 13:300 GMT, and tomorrow’s ECB decision.

US CPI is expected to edge up to 2.7% year-over-year from 2.6%, serving as the final major data release before the Federal Reserve meets next week. While the Fed seems to have shifted its focus away from inflation, any upside surprise to the already elevated consensus forecast of 0.3% month-on-month for core inflation could boost the dollar.

While the December rate decision likely won’t hinge on this CPI print, an unexpectedly hot number could shape the Fed’s stance for early 2025. Following Friday’s softer-than-expected NFP report, markets are now almost fully pricing in a 25bps December rate cut, up from 70% last week. So far, this hasn’t significantly impacted the GBP/USD direction, but it has kept the upside limited, suggesting investors continue to prefer the dollar because of Trump’s forthcoming policies in 2025 expected to boost spending and cut taxes, thus keeping inflation risks alive.

Pound gaining strength against the euro

Compared to the euro, the pound has had the benefit of a more functioning government and a touch of fiscal stimulus. In contrast, the political gridlock currently gripping parts of continental Europe is a major reason why the euro is struggling. As a result, UK growth prospects for next year look a little brighter than the eurozone’s, although this doesn’t necessarily mean the GBP/USD will rise. Indeed, a potential shift in the BoE’s tone in February, as services inflation cools further, could pose a risk to the pound against all major currencies.

Technical GBP/USD forecast: Key levels to watch

Source: TradingView.com

From a purely technical point of view, the GBP/USD forecast is turning a little bearish again but with the CPI release due, u would probably wait until the data is out of the way before acting my views when it comes to trading the cable.

Anyway, key short-term support is at around 1.2715 area; if we break below here today decisively then this could pave the way for a drop to retest the bullish trend line (that has been re-established after a brief break) around 1.2600-1.26200 area. Below that level, we have the psychologically important 1.25 handle, which is basically where the cable last found support from after a brief breakdown to hit 1.2487 at its lowest point in November.

In term of resistance, the next level to watch in the event price continues to push higher is between the 1.2800 to 1.12870 range. Here, the cable had found both support and resistance in the past and is where the 200-day average also comes into play.

— Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R