GBP/USD: Move towards 1.2000 or below not ruled out – Wells Fargo

FXStreet Insights Team FXStreet

The Bank of England (BoE) held its policy rate steady at 5.25%. The decision represents a loss of interest rate support for the Pound, economists at Wells Fargo report.

Policy rate pause could also be a policy rate peak

We now forecast that the current policy rate of 5.25% will be the peak for this cycle. We do expect rates to remain at that level for some time and, following a mild recession beginning late this year and as CPI inflation moves closer to the 2% target, forecast an initial modest 25 bps rate reduction only by the time of the May 2024 policy meeting. We expect the pace of rate cuts to gather momentum through the rest of next year, and see the Bank of England policy rate to end next year at 3.25%.

The decision to pause and the probable end to policy tightening represents a loss of interest rate support. As a result and even though the GBP/USD pair has already moved below our medium-term target of 1.2300, we think the risks remain tilted toward further Sterling weakness through early 2024. In that context, a move to 1.2000 or below cannot be ruled out.

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

AUD/USD stays weak above 0.6900 after China’s trade data

AUD/USD struggles to capitalize on the previous day’s recovery and stays defensive on the 0.6900 level following the narrowing of trade surplus in China. Increased December Fed rate hike bets allows the US Dollar to pause its decline and weigh on the pair. US CPI data is next of note for the major.

USD/JPY retakes 158.00 on weak Japanese data; focus shifts to US CPI

USD/JPY attracts some dip-buyers and retakes 158.00 in the Asian session on Tuesday as a fall in Japan’s Household Spending offsets hawkish BoJ Summary of Opinions, undermining the Japanese Yen. Moreover, Fed hike bets support the safe-haven US Dollar and the currency pair. The market focus now shifts to the release of the crucial US CPI report.

Gold flirts with $4,000 on solid USD buying

Gold slips back to the proximity of the key $4,000 mark per troy ounce on Tuesday, reaching new four-day lows at the same time. The yellow metal’s severe retracement follows the firm performance of the US Dollar, rising US Treasury yields across the curve and reignited speculation of extra Fed tightening.

Pi Network rebounds from record lows, exits oversold territory as momentum improves

Pi Network (PI) shows a strong recovery on Tuesday, up over 7% after recording its all-time low of $0.0624 the previous day. PI token’s appeal in the derivatives market shows minor improvement, with Open Interest rising to $6.21 million.

Five risks for the global economy in 2027

From AI bubbles to geopolitical breakthroughs, these are some of the five ways why this outlook could go wrong – or right: A severe correction in US stocks triggered by an AI meltdown, second-round inflation effects emerge at scale or geopolitical de-escalation delivers an energy peace dividend.

Gold reclaimed $4,100. Tuesday’s CPI test decides if it holds

Gold (XAU/USD) starts the week on a positive note, reclaiming the $4,100 psychological level as the US Dollar (USD) retreats from its recent highs. The precious metal recovers from Friday's losses, although investors remain cautious ahead of Tuesday's US Consumer Price Index (CPI) report, which could determine the next direction for Bullion.