As global financial markets gear up for a pivotal week, GBP/USD remains under strong bearish pressure. Major decisions from the Federal Reserve (Fed) and the Bank of England (BoE), coupled with crucial economic data, are expected to trigger one of the final waves of volatility in 2024. Can GBP/USD hold its ground, or will it continue its downward trend?
1. GBP/USD at a Critical Juncture
The GBP/USD pair continues its downward trajectory after last week’s weak UK economic data pushed the rate closer to the 1.26 handle. This was accompanied by a sharp rebound in EUR/GBP from 0.82 to above 0.83. As investors await key central bank announcements, the outlook for GBP/USD remains bleak.
Key levels to watch include:
- Support: 1.25
- Resistance: 1.28
2. Fed: Will We See a “Hawkish Rate Cut”?
The Fed is widely expected to announce a 25-basis-point rate cut during its final meeting of the year on Wednesday. However, the focus will shift to forward guidance for clues about the monetary policy trajectory.
The critical question is whether the Fed will pause its rate-cutting cycle in early 2025 or continue with 25-basis-point reductions. Recent comments from Fed Chair Jerome Powell have fueled speculation of a “hawkish cut,” as he highlighted reduced risks in the labor market but persistent inflation concerns.
Furthermore, President-elect Trump’s fiscal policies could influence the Fed’s easing trajectory in 2025, potentially keeping the US dollar strong and adding pressure on GBP/USD.
3. BoE: A Key Driver for the Pound
While the Fed will take center stage midweek, the BoE’s rate decision on Thursday is equally crucial for GBP/USD. After last week’s weak UK GDP figures and soft macro data, the market expects the BoE to cut rates by 25 basis points to 4.50%. However, the tone of the BoE’s policy statement will be a major driver of GBP volatility.
- Dovish Cut: A rate cut emphasizing ongoing growth risks could weigh heavily on the pound.
- Cautious Easing: Alternatively, a cautious approach to easing could lend some support to GBP/USD.
4. Technical Analysis: Support and Resistance Levels to Watch
From a technical perspective, GBP/USD remains under bearish pressure after failing to hold above the 1.28 resistance level. Key levels to monitor include:
- Immediate Support: 1.26 – A decisive break below this level could open the door to 1.25, where the pair found support in November.
- Resistance: 1.2800–1.2870, aligning with the 200-day moving average. A break above this zone would indicate a potential shift in momentum.
5. Key Events and Data Releases
In addition to the Fed and BoE decisions, early-week data releases will shape market expectations:
- Monday: Global and UK PMI figures.
- Tuesday: UK wage growth data.
- Wednesday: UK CPI – a critical input for the BoE’s outlook.
Conclusion
The GBP/USD forecast remains bearish as traders prepare for a week dominated by central bank decisions. While the Fed’s expected “hawkish cut” is likely to keep the US dollar strong, the BoE’s dovish tilt could put additional downward pressure on the pound. Key levels at 1.25 (support) and 1.28 (resistance) will be crucial in determining the pair’s near-term direction amid heightened volatility.