The Future of GBP/USD

9 Aralık 2024

The Future of GBP/USD: Between Fed bets and Sterling challenges

Written by: Rania Gule, Senior Market Analyst at XS.com

The GBP/USD pair faces multiple challenges as the new week begins, remaining trapped in a narrow trading range near the mid-1.2700 level during Monday’s session. Despite hovering near a more than three-week high above 1.2800, reached last Friday, the market’s fundamental backdrop, in my view, highlights the importance of patience and caution for traders betting on an upward trend.

The latest U.S. Non-Farm Payrolls report is at the forefront, revealing a slight uptick in November’s unemployment rate. While the report bolstered expectations for the Federal Reserve to lower borrowing costs in December, market reactions were short-lived. Instead, fresh bets emerged that the central bank might slow down or pause rate cuts in January, stabilising the U.S. dollar above its one-month low.

This resilience of the dollar, in my opinion, weakens the pound’s attempts to gain upward momentum. The greenback continues to enjoy support from external factors, including global geopolitical tensions, economic concerns surrounding China, and the possibility of new tariffs under President-elect Donald Trump. Together, these factors strengthen the dollar’s appeal as a haven, dampening investors’ appetite for the British pound.

On the other hand, the pound faces additional pressure due to the pessimistic outlook of Bank of England Governor Andrew Bailey. His projections of four rate cuts in 2025 have raised concerns among investors about the British currency’s future. This negative sentiment toward the UK’s monetary policy further complicates any sustainable upward movement for the GBP/USD pair.

Amid these dynamics, traders are eagerly awaiting the release of the U.S. Consumer Price Index (CPI) report, scheduled for Wednesday. This report is expected to offer clearer insights into the Federal Reserve’s monetary policy path, particularly regarding rate cuts during the December meeting. In my view, this data could prove pivotal in shaping the dollar’s short-term movements, thereby determining the next directional phase for the GBP/USD pair.

Simultaneously, the market is keeping an eye on a speech by Bank of England Deputy Governor David Ramsden, also set for Monday. Any additional hints regarding UK monetary policy could impact pound movements, opening up short-term investment opportunities.

Thus, this pair remains governed by a web of complex and interconnected factors, ranging from global geopolitical tensions to market expectations for central bank decisions. With the dollar continuing to benefit from its role as a haven, the pound finds itself in a challenging position, facing both internal and external obstacles that hinder any strong upward movement.

In conclusion, I believe the future of the GBP/USD pair hinges on upcoming economic data, particularly U.S. inflation figures, and official statements from the Bank of England. As markets seek to decipher the monetary policies of both central banks, expectations are fraught with uncertainty, compelling traders to approach with caution and be ready to seize any opportunities amid the volatility.

 

Zaid Barem / YMM