20 Dec 2024

• The Pound Sterling finds cushion after the release of the UK Retail Sales data for November, even though growth was lower than anticipated.
• A higher number of BoE officials voted for an interest rate cut on Thursday, boosting dovish bets for 2025.
• Investors await the US PCE inflation data for November for fresh Fed interest rate cues.
• The UK Office for National Statistics (ONS) indicated that the effects of the Black Friday sale were not reflected in the November data, as the sale began on November 29. The agency's report encompassed data from October 27 to November 23, covering a four-week period.
  
  In a broader context, the future of the British currency remains uncertain following the Bank of England's (BoE) monetary policy meeting on Thursday, which revealed a dovish sentiment regarding the policy outlook. The BoE maintained its key borrowing rates at 4.75%, in line with expectations, as UK inflation has risen over the past three months. However, three policymakers advocated for a reduction in interest rates, contrasting with one who aligned with market expectations.
  
  BoE Governor Andrew Bailey did not commit to a specific trajectory for rate cuts. He stated, “Given the increased uncertainty in the economy, we cannot guarantee when or by how much we will reduce rates in 2025.”
  
  In the meantime, traders are anticipating a 53 basis points (bps) decrease in interest rates by the BoE in 2025 following the policy announcement.

• Daily digest market movers: Pound Sterling posts fresh seven-month low against USD

  The Pound Sterling has experienced a rebound after reaching a new seven-month low near 1.2470 against the US Dollar (USD) on Friday. The GBP/USD pair has shown slight recovery as the US Dollar Index (DXY) relinquishes its intraday gains following a two-year high around 108.50, in anticipation of the United States (US) Personal Consumption Expenditure Price Index (PCE) data for November, scheduled for release at 13:30 GMT.
  
  Market participants are expected to closely monitor PCE inflation, as Federal Reserve (Fed) officials have expressed increasing concern regarding the stagnation of disinflation efforts, rather than the potential risks to employment. The core PCE inflation, which is the Fed’s preferred measure, is projected to have accelerated to 2.9% from 2.8% in October. On a month-over-month basis, the underlying inflation data is anticipated to have increased by 0.2%, down from 0.3% in October.
  
  The outlook for the US Dollar has improved. During the policy meeting on Wednesday, the Fed reduced key borrowing rates by 25 basis points (bps) to a range of 4.25%-4.50% as anticipated, while indicating a more gradual rate-cut path for 2025. The Fed’s dot plot revealed that officials now foresee federal fund rates reaching 3.9% by 2025, an increase from the 3.4% projected in September.
  
  The Fed has indicated a reduced number of rate cuts for the upcoming year, as officials remain optimistic about robust economic growth, prompting a cautious approach towards further policy easing. Additionally, the third estimate for Q3 Gross Domestic Product (GDP) was revised upward to 3.1%, compared to the previous estimate of 2.8%.

  Technical Analysis: Pound Sterling weakens on death cross formation

  The Pound Sterling weakens against the US Dollar on a decisive break below the upward-sloping trendline around 1.2600, which is plotted from the October 2023 low of 1.2035.

  A death cross, represented by the 50-day and 200-day Exponential Moving Averages (EMAs) near 1.2790, suggests a strong bearish trend in the long run.

  The 14-day Relative Strength Index (RSI) slides below 40.00, suggesting that a fresh downside momentum has been triggered.

  Looking down, the pair is expected to find a cushion near the April 22 low around 1.2300. On the upside, the December 17 high at 1.2730 will act as key resistance.