Pound Sterling trades sideways against US Dollar with US inflation in focus
- The Pound Sterling trades sideways near 1.2750 against the USD as investors await the US inflation data for November.
- The impact of US inflation should be limited on Fed interest rate prospects unless there is a dramatic deviation from expectations.
- Investors expect the BoE to leave interest rates steady at 4.75% on December 19.
The Pound Sterling (GBP) consolidates in a tight range near 1.2750 against the US Dollar (USD) in Tuesday’s North American session. The GBP/USD pair trades sideways as investors focus on the United States (US) Consumer Price Index (CPI) data for November, which will be published on Wednesday.
Economists expect the annual headline inflation to have accelerated to 2.7% from the October reading of 2.6%. In the same period, the core CPI – which excludes volatile food and energy prices – is expected to have risen steadily by 3.3%. The month-on-month headline and core CPI are estimated to have grown steadily by 0.2% and 0.3%, respectively.
Unless there is a dramatic deviation from what’s expected, the impact of the inflation data shouldn’t significantly change market expectations for the Federal Reserve’s (Fed) likely interest rate action in the policy meeting on December 18. Recent commentaries from a string of Fed officials have indicated that they are confident about inflation remaining on a sustainable path towards the bank’s target of 2%.
However, Fed Governor Michelle Bowman, a well-known hawk, said on Friday that the central bank should “proceed cautiously and gradually in lowering the policy rate, as inflation remains elevated.”
There is an almost 90% chance that the Fed will reduce interest rates by 25 basis points (bps) to 4.25%-4.50%, according to the CME FedWatch tool.
Meanwhile, Q3 Unit Labor Costs data has come in weaker than expected. The Unit Labor Cost data rose by 0.8%, less than half the pace estimated and the prior release of 1.9%
Daily digest market movers: Pound Sterling edges higher as BoE is set to leave interest rates steady next week
- The Pound Sterling gains against its major peers on Tuesday in a light United Kingdom (UK) economic calendar week, with investors becoming increasingly confident that the Bank of England (BoE) will leave interest rates unchanged at 4.75% in the monetary policy meeting on December 19.
- The majority of BoE officials are expected to vote for an unchanged interest rate decision as the UK headline inflation has ticked up again after declining below the bank’s target of 2%. The BoE had already projected that inflation would pick up after coming within the bank’s desired range, suggesting that the central bank needs to do more to bring inflation down sustainably.
- Later this week, investors will focus on the UK monthly Gross Domestic Product (GDP), and Industrial and Manufacturing Production data for October. The GDP and factory data will show the current status of economic health. Economists expect the factory and GDP data to have expanded after declining in September.
British Pound PRICE Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.24% | -0.05% | 0.29% | -0.08% | 0.65% | 0.77% | 0.10% | |
| EUR | -0.24% | -0.28% | 0.03% | -0.32% | 0.42% | 0.53% | -0.14% | |
| GBP | 0.05% | 0.28% | 0.31% | -0.03% | 0.71% | 0.82% | 0.15% | |
| JPY | -0.29% | -0.03% | -0.31% | -0.36% | 0.37% | 0.48% | -0.18% | |
| CAD | 0.08% | 0.32% | 0.03% | 0.36% | 0.73% | 0.85% | 0.19% | |
| AUD | -0.65% | -0.42% | -0.71% | -0.37% | -0.73% | 0.11% | -0.54% | |
| NZD | -0.77% | -0.53% | -0.82% | -0.48% | -0.85% | -0.11% | -0.66% | |
| CHF | -0.10% | 0.14% | -0.15% | 0.18% | -0.19% | 0.54% | 0.66% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
Technical Analysis: Pound Sterling aims to extend recovery to near 200-day EMA
The Pound Sterling strives to reclaim the key resistance of 1.2800 against the US Dollar. The GBP/USD pair holds the 20-day Exponential Moving Average (EMA) around 1.2720.
The 14-day Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, suggesting a sideways trend.
Looking down, the pair is expected to find a cushion near the upward-sloping trendline around 1.2500, which is plotted from the October 2023 low near 1.2035. On the upside, the 200-day EMA around 1.2830 will act as key resistance.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
