GBP to USD Forecast: A Hawkish Bank of England and US Inflation in the Spotlight

Highlights

• The GBP/USD gained 0.01% on Wednesday, ending the session at $1.26942.
• Hawkish Bank of England commentary continued to resonate, driving buyer demand for the GBP/USD.
• On Thursday, the Bank of England and US inflation are the focal points.

The Wednesday GBP/USD Overview

On Wednesday, the GBP/USD gained 0.01%. Following a 0.53% rise on Tuesday, the GBP/USD ended the day at $1.26942. The GBP/USD rose to a high of $1.27330 before falling to a low of $1.26643.

Bank of England Remains in the Spotlight

On Thursday, the Bank of England will be in the spotlight for another session. Monetary Policy Committee Member Megan Greene is on the calendar to speak. Discussing monetary policy, comments relating to inflation, the economy, and interest rates need consideration. Alignment with BoE Governor Andrew Bailey would support buyer demand for the GBP/USD.

There are no UK economic indicators for investors to consider on Thursday. However, better-than-expected UK stats have allowed the BoE to signal a more hawkish rate path to tame inflation. Recently, UK Services PMI numbers surprised the markets, rising from 49.3 to 49.5 in November.

On Wednesday, Bank of England Governor Andrew Bailey responded to criticism of being an ultra-pessimist. The BoE Governor said the UK economic outlook was the worst he has seen. Governor Bailey continues to dampen hopes of rate cut discussions, supporting the GBP/USD return to $1.27.

US Inflation and the Fed in Spotlight

On Thursday, US inflation and personal income/spending will warrant investor attention. After the hotter-than-expected US GDP numbers, sticky US inflation could cut bets on an H1 2024 Fed rate cut. In contrast, softer inflation would raise bets on a May Fed rate cut. However, US personal income/spending must also signal a weakening outlook for consumer spending.

Weaker consumer spending could dampen demand-driven inflation, allowing the Fed to take a less hawkish Fed rate path.

Economists forecast the Core PCE Price Index to increase by 3.5% year-over year in October vs. 3.7% in September.

Other stats include US jobless claims, pending home sales, and Chicago PMI numbers. However, these will likely play second fiddle to the US inflation and personal income/spending numbers.

With US inflation in focus, Fed commentary needs monitoring. Fed Vice Chair John Williams is on the calendar to speak. Reaction to the inflation numbers would move the dial.

Short-Term Forecast

Near-term trends for the GBP/USD will hinge on the US inflation and personal income/spending numbers. Softer-than-expected figures could fuel bets on an H1 2024 Fed rate cut. Rising bets on an H1 2024 Fed rate cut could tip policy divergence more toward the Pound and bring $1.30 into view.

GBP to USD Price Action

Daily Chart

The GBP/USD remained above the 200-day and 50-day EMAs, with the EMAs sending bullish price signals.

A GBP/USD rise to the Wednesday high of $1.27330 would support a move to the $1.28013 resistance level.

Bank of England speeches and US inflation are the focal points on Thursday.

However, a GBP/USD fall through the $1.26500 handle would bring sub-$1.26 into view.

The 14-period daily RSI reading of 71.84 shows the GBP/USD in overbought territory. Selling pressure may intensify at the Wednesday high of $1.27330.

4-Hourly Chart

The GBP/USD held above the 50-day and 200-day EMAs, affirming bullish price signals.

A GBP/USD move to $1.27500 would give the bulls a run at the $1.28013 resistance level.

However, a fall through the $1.26500 handle would bring the 50-day EMA into play.

The 14-period RSI on the 4-hour Chart at 68.39 suggests a GBP/USD rise to the Wednesday high of $1.27330 before entering overbought territory.