Pound Sterling recovers losses against US Dollar as US inflation rose expectedly

• The Pound Sterling ticks higher to near 1.2770 against the US Dollar after the US inflation data rose expectedly in November.
• Economists expect the Fed to cut interest rates by 25 bps after the policy meeting on December 18.
• Investors await the UK monthly GDP data to get cues about the current status of the economy.

The Pound Sterling (GBP) recovers intraday losses and edges higher to near 1.2770 against the US Dollar (USD) in Wednesday’s North American session. The GBP/USD pair moves higher after the release of the United States (US) Consumer Price Index (CPI) data for November, which showed that inflationary pressures rose in line with expectations.

The inflation report showed that the annual headline CPI accelerated at a faster pace to 2.7%, as expected, from the October reading of 2.6%. The core CPI – which excludes volatile food and energy prices – grew steadily 3.3%. The month-on-month headline and core CPI rose expectedly by 0.3%.

Sticky US inflation data has boosted expectations that the Federal Reserve (Fed) will reduce its key borrowing rates by 25 basis points (bps) to 4.25%-4.50 in the policy meeting on December 18.

According to the latest Reuters poll, 90% of economists expect that there will be a 25-basis points (bps) interest rate reduction next week. The poll also showed that a majority of economists expect the Fed to pause the policy-easing spree from the first policy meeting of 2025 in January, assuming that policies of higher import tariffs and lower taxes by US President-elect Donald Trump will be inflationary.

Daily digest market movers: Pound Sterling awaits UK monthly GDP, factory data

• Like the US Dollar, the Pound Sterling is also struggling for a direction against other major currencies amid the light United Kingdom (UK) economic calendar. Therefore, the British currency will be influenced by market expectations for the Bank of England’s (BoE) likely interest rate action in the policy meeting on December 19.
• Traders expect the BoE to leave interest rates unchanged at 4.75% next week as price pressures persist. Ahead of the BoE policy decision, employment data for three months ending October and the Consumer Price Index (CPI) data for November will be released, which could influence BoE interest rate expectations.
• Meanwhile, growing concerns over UK labor market strength could compel BoE officials to deliver a dovish interest rate guidance. A recent survey by the BoE Decision Maker Panel (DMP) showed that one-year forward employment growth expectations fell to four-year lows. 
• 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.

Technical Analysis: Pound Sterling holds key 20-day EMA

The Pound Sterling strives to reclaim the key resistance of 1.2800 against the US Dollar. The GBP/USD pair holds slightly above 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.