Sterling sliding, Fed worried about Trump

Kenny Fisher MarketPulse

The British pound is on a nasty slide and has lost 1.8% since Monday. In the European session, GBP/USD is currently trading at 1.2294, down 0.53%. Earlier, the pound fell as low as 1.2237 (1%), it lowest level since Nov. 2023.

BRC shop inflation hits 3.5 year low

The latest setback for the pound was Thursday’s British Retail Consortium (BRC) Shop Price index, which came in at -1% in December, lower than the November reading of -0.4% and the market estimate of -0.6%. This was the lowest level since July 2021. This points to weaker consumer spending, a key engine of the economy.

The BRC has projected that food inflation will continue to accelerate, which will add to the squeeze that weary consumers are feeling from inflation and high interest rates. The UK government introduced a “tax and spend” budget last October but retailers have argued that this recipe will lead to retail job cuts and higher prices.

Fed minutes point to Trump worries

The Federal Reserve minutes of the December meeting, released on Wednesday, indicated that policy makers were concerned about the upside risk to inflation, particularly due to incoming President-elect Trump’s potential trade and immigration policies. Trump has promised to slap punishing tariffs on US trade partners, including China. Trump has also called for mass deportations of illegal immigrants.

The minutes did not mention Trump by name but there was no doubt that Fed members had Trump in mind. Members noted their concern that inflation could rise due to “the likely effects of potential changes in trade and immigration policy”.

Members also indicated that the Fed was “at or near the point” of slowing the pace of easing. After starting the easing cycle with a jumbo rate cut of 50 basis points, the Fed has delivered back-to-back cuts of 25 basis points. At the December meeting, the Fed lowered its rate forecast for 2025 to two cuts, down from four in the September forecast.

After the December meeting, the currency markets reacted sharply to the revised forecast and the US dollar shot up against the majors. The Fed again sounded hawkish in the minutes but this time the US dollar showed little movement against the majors, with the exception of GBP/USD.

GBP/USD technical

GBP/USD is testing support at 1.2292. Below, there is support at 1.2220.
1.2393 and 1.2465 are the next resistance lines.

Author

Kenny Fisher

MarketPulse

A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities.

EUR/USD holds firm above 1.1900 as US NFP looms

EUR/USD holds its upbeat momentum above 1.1900 in the European trading hours on Wednesday, helped by a broadly weaker US Dollar. Markets could turn cautious later in the day as the delayed US employment report for January will takes center stage.

GBP/USD recovers losses despite rising UK political risks, BoE rate cut bets

Pound Sterling advances against the US Dollar after registering modest losses in the previous session, trading around 1.3650 during the Asian hours on Wednesday. The pair could extend losses as the Pound Sterling faces pressure from rising political risks in the UK and growing expectations of near-term Bank of England rate cuts.

Gold sticks to gains near $5,050 as focus shifts to US NFP

Gold holds moderate gains near the $5,050 level in the European session on Wednesday, reversing a part of the previous day's modest losses amid dovish US Federal Reserve-inspired US Dollar weakness. This, in turn, is seen as a key factor acting as a tailwind for the non-yielding yellow metal ahead of the critical US NFP release.

US Nonfarm Payrolls expected to show modest job gains in January

The United States Bureau of Labor Statistics will release the delayed Nonfarm Payrolls data for January on Wednesday at 13:30 GMT. Investors expect NFP to rise by 70K following the 50K increase recorded in December.

Dollar drops and stocks rally: The week of reckoning for US economic data

Following a sizeable move lower in US technology Stocks last week, we have witnessed a meaningful recovery unfold. The USD Index is in a concerning position; the monthly price continues to hold the south channel support.

BNB prolonged correction signals deeper bearish momentum

BNB (BNB), formerly known as Binance Coin, is trading below $618 on Wednesday, marking the sixth consecutive day of correction since the weekend. The bearish price action is further supported by rising short bets alongside negative funding rates in the derivatives market.