GBP/USD Stalls Close to 1.2800

December 10, 2024 - Written by Frank Davies

STORY LINK GBP/USD Stalls Close to 1.2800

The Pound to Dollar (GBP/USD) exchange rate has tested the 1.2800 level over the past 24 hours, but failed to break through and retreated to just below 1.2750 on Tuesday.

Another warning over fiscal policy from Chancellor Reeves had some impact in curbing Pound demand and the global dimension was also less favourable with equities moving lower.

Scotiabank commented; “Sterling tested the 200-day MA (1.2822) effectively last week. Regaining the low 1.28 region on a sustained basis would suggest a new, slightly firmer 1.28/1.30 range may be developing. Support is 1.2720/25.”

Markets do not expect the Bank of England to cut interest rates this month which should provide some Pound support, especially with the ECB, SNB and Bank of Canada forecast to cut this week.

Dollar developments will remain a key element in the short term.

According to ING; “We doubt investors will want to chase the DXY [dollar index] too much lower ahead of tomorrow’s US CPI number.”

MUFG maintains a positive overall dollar stance; “A higher likelihood of the Fed delivering another 25bps rate cut this month is not sufficient to trigger a sustained reversal of US dollar strength built on expectations that the incoming Trump administration will put in place policies including higher tariffs that will support a stronger US dollar next year.”

The latest US consumer prices data on Wednesday will be a key near-term event and could jolt market expectations.

Ahead of the data, markets are pricing in around an 85% chance of a Fed rate cut at the December meeting.

Scotiabank commented; “Those expectations may be tested somewhat by this week’s US inflation data, however, with CPI forecast to reflect some persistent stickiness in prices.”

Consensus forecasts are for prices to increase 0.2% on the month with the year-on-year rate edging higher to 2.7% from 2.6%.

Core prices are again expected to increase 0.3% on the month with the annual rate holding at 3.3%.

Weaker than expected data would ensure a rate cut in December, but stronger than expected data could trigger fresh doubts over a rate cut.

Danske Bank has reservations over inflation trends; “We have lifted our 2025 inflation forecast to 2.7% from 2.2%, and roughly half of the increase is due to the tariffs.”

ING noted the expectations of a 0.3% in core prices; “While not ideal for the Fed, such a reading should not prevent the central bank from cutting 25bp a week later. But a 0.4% MoM reading on core CPI would really throw the cat amongst the pigeons and more seriously question whether the Fed is right to be cutting rates after all.”

The Federal Reserve will remain in a blackout period ahead of the decision.

If, therefore, the Fed wants to send a signal there will need to be an unofficial briefing through the Wall Street Journal.

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TAGS: Pound Dollar Forecasts