GBP/USD hits 1.2550 amid low trading volume

The GBP/USD pair has seen a modest rise to 1.2550, as low trading volume characterizes the market this week due to the upcoming Christmas holidays. The pair has been consolidating, with minimal price action as the market adjusts to a quiet holiday period. Similarly, the US Dollar Index (DXY) is largely flat, hovering above 108.00, showing no significant changes as traders await further economic data.

In the broader picture, the US Dollar maintains a strong footing. Expectations for a slower pace of interest rate cuts from the Federal Reserve in the coming year continue to support the Greenback. Fed officials are signaling a more cautious approach to reducing rates, a shift influenced by a slower-than-expected disinflationary process and ongoing uncertainties around new policies under President-elect Donald Trump. The latest Fed projections suggest that the federal funds rate could fall to 3.9% by the end of 2025, hinting at several rate cuts next year but less than the markets expected before last week’s decision.

Looking at the economic calendar, Initial Jobless Claims data will be released on Thursday, with the number of new claims expected to decline slightly to 218K. This could provide some volatility for the US Dollar. However, despite these factors, the Pound remains vulnerable, having fallen below the key upward-sloping trendline around 1.2600, and showing signs of potential further downside. Later on, in the first week of January, Nonfarm Payrolls figures from December from the US will be closely looked upon.

GBP/USD Technical Outlook

GBP/USD continues to face significant downside pressure. In addition, the Relative Strength Index (RSI) has dipped below the 40.00 mark, which increases the likelihood of further downside momentum if it stays below this level. Moreover, the Moving Average Convergence Divergence (MACD) prints red bars which suggests a strong presence of the bears.
On the downside, the next support level for GBP/USD is seen around the 1.2300. On the upside if the pair can recover the 1.2600 mark, it could be a recovery, this level will be a crucial point to watch for any potential upside momentum.