GBP/USD runs out of puff at major resistance – Central banks are in the spotlight

GBPUSD has enjoyed a 10% gain over the greenback since the beginning of November, smashing into a major daily supply zone. The path of least resistance with possible capitulation back to the 1.1900 zone is more likely.

Both the Bank of England and the Fed meet this week and both are likely to put in the last rate rise for 2022. A 50 basis point hike is likely with both central banks. The UK has just released the employment numbers for the month of November. The average earning read at 6.1%, whilst still high is coming in well under the current inflation rate. Unemployment is holding steady at 3.7% which could actually be seen as good news for the MPC. Governor Bailey was verging on the dovish side after last month's bumper 0.75 basis point (bp)rise and could well signal a slowdown in future rate hiked again this week. Indeed some analysts are calling for just a 25 basis point rise which would in turn pull the GBP lower.

Today we will see the latest CPI. Markets are pricing in a 7.3% rise. The employment market remains tight in the US. PPI came in higher than expected. A reading in line with expectations or indeed higher would see the USD push higher supporting the lower GBPUSD call. The Fed meet on Wednesday and are likely to put in the 50 bp rise that the markets are expecting. But the hawkish narrative that rates will have to stay high for longer could again support a stronger USD.

So the fundamentals and the technical are aligning here for a lower GBPUSD in the run-up to year-end. These are only our opinions and should not be construed as trading advice.