GBP/USD Forecast: Sterling in mid 1.2600s as market braces for dovish Fed after neutral UK inflation

The flow of Brexit headlines slowed down after the UK Prime Minister said she will bring the Brexit agreement to parli\ament for a vote before January 21.
The correction on GBP/USD was capped by 1.2700 on the upside with Brexit deal uncertainty persistently weighing.
The UK inflation decelerated to 2.3% y/y in November with core inflation at 1.8% y/y.
The US Federal Reserve is expected to hike rates to 2.25%-2.50% while delivering dovish outlook on rates going into 2019.

Mario Blascak, PhD Independent Analyst

The GBP/USD is trading little changed on the upside at around 1.2650 after being rejected at 1.2660-1.2700 region representing the confluence of the downward sloping trendline resistance and the 23.6% Fibonacci retracement line on a daily chart. The news of the UK headline inflation decelerating in November to 2.3% y/y had no effect on the currency market with Sterling benefitting from the softer US Dollar as global growth outlook dims ahead of the expected rate hike by the Federal Reserve.

The GBP/USD was not able to withstand the levels above 1.2660-1.2700 earlier this week even with the outlook for the US rate hike being increasingly dovish with the rebound in Sterling ahead of the Federal Reserve largely a factor of dovish market expectations from the monetary policy outlook from Fed.

With the end of the year approaching, markets are nervous as global growth picture amid trade wars deteriorates. The Brexit uncertainty and fear of the UK parliament possibly rejecting the deal leaving the UK with no-deal Brexit that is the biggest drag on currency.

Technically, the GBP/USD is trapped in a downward sloping trend after breaking the important support line of 1.2660 representing a post-Brexit correction of Sterling higher to 1.4777 high. The technical oscillators like Momentum and the Relative Strength Index are both pointing sideways in the neutral territory while Slow Stochastics just made a bearish turnover below the overbought territory on a 1-hour chart. With no fundamental news until Wednesday, the sentiment is expected to drive the GBP/USD in a broad range of 1.2550-1.2660.

GBP/USD 1-hour chart

Author

Mario Blascak, PhD

Independent Analyst

Dr. Mário Bla&scaron;čák worked in professional finance and banking for 15 years before moving to journalism. While working for Austrian and German banks, he specialized in covering markets and macroeconomics.

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