GBP to USD Forecast: Bank of England and Fed Chatter in Focus Ahead of Key Stats

Highlights

• The GBP/USD declined by 0.68% on Friday, ending the session at $1.26793.
• Hawkish comments from Fed Vice Chair John Williams and upbeat US service sector data overshadowed better-than-expected UK Service PMI numbers.
• Focal points for the Monday session include Bank of England commentary and US housing market data.

The Friday GBP/USD Overview

On Friday, the GBP/USD declined by 0.68%. After a 1.18% surge on Thursday, the GBP/USD ended the day at $1.26793. The GBP/USD rose to a high of $1.27903 before falling to a Friday low of $1.26677.

UK Bank of England MPC Member Broadbent in Focus

On Monday, the Bank of England will be in the spotlight. Monetary Policy Committee member Ben Broadbent will deliver a speech at the London School of Economics. Last week, Bank of England Governor Andrew Bailey warned that the Bank had more work left to tame inflation.

However, Governor Bailey was not alone in his views on inflation. Three MPC members voted in favor of a rate hike last Thursday. Ben Broadbent was not among the hawkish three. Broadbent’s views on inflation, the economy, and monetary policy could move the dial.

This week is another crucial for the GBP/USD. UK inflation (Wed), GDP (Fri), and retail sales (Fri) could dictate market bets on the timing of a first BoE interest rate cut.

US Housing Sector and the Fed in the Spotlight

On Monday, US housing sector data will garner investor interest. Economists consider US housing sector data as leading indicators. Uptrends in housing data could signal a pickup in economic activity.

The US housing sector accounts for over 15% of the economy. A pickup in housing sector activity could fuel consumer spending and demand-driven inflation. The net effect could be a less dovish Fed rate path to curb consumer spending and dampen inflation.

Economists forecast the NAHB Housing Market Index to increase from 34 to 36 in December. While Index values at sub-50 signal a negative outlook, a less hawkish Fed rate path could affect mortgage rates and demand.

Beyond the numbers, investors must monitor Fed chatter. Hawkish comments could drive buyer demand for the US dollar. On Friday, Fed Vice Chair John Williams poured cold water over bets on a Q1 2024 Fed rate cut. The NY Fed Reserve President warned it was too soon to consider rate cuts.

Short-Term Forecast

Near-term GBP/USD trends will hinge on UK and US inflation figures. Diverging inflation trends could materially impact the GBP/USD. Softer-than-expected UK inflation numbers could fuel bets on a BoE rate cut. Sticky US inflation numbers would support Fed Vice Chair Williams’s view about monetary policy and tilt policy divergence toward the US dollar.

GBP to USD Price Action

Daily Chart

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

A GBP/USD return to the $1.27500 handle would support a move to the $1.28013 resistance level.

On Monday, the focal points include central bank commentary and US housing market data.

However, a GBP/USD fall through the $1.26500 handle would bring the 50-day EMA into view.

The 14-period daily RSI reading of 60.68 indicates a GBP/USD move through the $1.28013 resistance level before entering overbought territory.

4-Hourly Chart

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

A GBP/USD return to the $1.27500 handle would support a break above the $1.28013 resistance level.

However, a fall through the 50-day EMA would give the bears a run at the 200-day EMA.

The 14-period RSI on the 4-hour Chart at 55.90 suggests a GBP/USD move to the $1.28013 resistance level before entering overbought territory.