In the near term and according to the performance on the hourly chart, it seems that the GBP/USD currency pair is trading within a lateral channel formation.
GBP/USD tried to rally after the US Federal Reserve eased its preferred inflation gauge again, but sterling found plenty of willing sellers as the market continued to favor the US currency ahead of this week’s interest rate decisions. Accordingly, the dollar was sold off for the temporary gain against sterling and other currencies late on Friday after the Bureau of Economic Analysis said the core personal consumption expenditures (PCE) price index rose 0.3% for December but fell from 4.7% to 4.4% in annual terms.
The price of the sterling currency pair against the US dollar GBP/USD dropped to the support level of 1.2345 before closing the week’s trades settling around the level of 1.2397.
According to the announcement, the gross personal consumption expenditure price index rose by 0.1% in the year-end results which led to the annual rate falling to 5%, from 5.5%, after rising service prices were unable to offset the effect of a -5.1% drop in energy costs. The increase in transport prices led to an increase in service sector inflation, which is the main driver of general inflation in December, where housing and utility prices came behind food service inflation and accommodation costs.
Friday’s data confirms that the US Federal Reserve’s preferred measure of inflation follows a decline in the official consumer price index, but with momentum picking up in some categories, it’s unclear how much comfort the bank will take from the data. More so after Thursday’s preliminary estimate of fourth-quarter gross domestic product beat economists’ expectations, although many say the report was weaker than it appears and still expect a technical recession later in the year.
Other data released Friday indicated that U.S. consumer confidence about the economy stabilized in December, even as consumer spending fell, and that pending home sales rose for the first time since May 2022. Inflation expectations measured by the University of Michigan also fell on Friday, likely to be a welcome development by the Federal Reserve.
The Fed is widely expected to raise interest rates by 25 basis points to 4.75% next Wednesday in what TS Lombard Blitz says is likely to be the last hike. Although for the pound against the dollar, this is what the Fed is saying about the possibility of further increases later in the year.
American Federal Reserve policy
Governor Waller pointed to December’s increase in the month-on-month inflation rate as one of the reasons he “remains cautious about inflation expectations and supportive of continued monetary policy tightening,” despite recent declines in annual U.S. inflation. Others at the Federal Open Market Committee (FOMC) argued for continued interest rate hikes even as bets mounted on the possibility of a cut in borrowing costs by the end of the year, and one of the risks facing the British pound is that this remains the active offer to the FOMC this week.
Technical analysis of the GBP / USD pair:
- In the near term and according to the performance on the hourly chart, it seems that the GBP/USD currency pair is trading within a lateral channel formation.
- This indicates the absence of a clear directional bias in market sentiment.
- Therefore, the bears will target potential pullback profits at around 1.2371 or lower at the 1.2345 support.
- On the other hand, the bulls will look to pounce on profits at around 1.2420 or higher at the 1.2446 resistance.
In the long term and according to the performance on the daily chart, it seems that the GBP/USD currency pair is trading within the formation of a sharp ascending channel. This indicates a strong long-term bullish bias in market sentiment. Therefore, the bulls will look to extend the current gains towards 1.2519 or higher to the 1.2650 resistance. On the other hand, the bearish speculators will look to pounce on profits at around 1.2257 or below at the 1.2121 support.