GBP to USD Forecast: Bank of England, the Fed, and US Housing Market Numbers

Highlights

• The GBP/USD fell by 0.25% on Monday, ending the session at $1.26474.
• On Tuesday, Bank of England speeches and UK CBI Industrial Trend Orders will draw interest.
• Later in the session, Fed speeches and US housing sector data also need consideration.

The Monday GBP/USD Overview

On Monday, the GBP/USD fell by 0.25%. Following a 0.68% loss on Friday, the GBP/USD ended the day at $1.26474. The GBP/USD rose to a high of $1.27038 before falling to a Monday low of $1.26285.

Bank of England Chatter and Industrial Trends in Focus

On Tuesday, Bank of England Monetary Policy Committee member Sarah Breeden is on the calendar to speak. The Deputy Governor for Financial Stability will deliver a speech at the IIF Talking Policy Series. Comments relating to the Bank of England interest rate path, inflation, and financial stability need consideration.

On Thursday, December 14, the Deputy Governor voted to keep interest rates at 5.25%. A shift in views on interest rates could affect the buyer demand for the GBP/USD. Notably, concerns over financial stability could also pressure the GBP/USD.

While Bank of England speeches remain a focal point, CBI Industrial Trend Orders will also draw investor interest.

Economists forecast the CBI Industrial Trend Orders Index to increase from -35 to -22 in December. However, the numbers may not influence the Bank of England’s interest rate goals. The UK manufacturing sector accounts for less than 30%, limiting the impact on monetary policy.

The Fed and the US Housing Sector in Focus

On Tuesday, US building permits and housing starts will garner investor interest. Recent US economic indicators reflected a robust economy. However, a worse-than-forecast fall in housing sector data could be early signs of a waning US economy. Economists consider US housing sector data as leading indicators for the US economy.

A deteriorating housing market could impact consumer confidence and spending. Downward trends in consumer spending could dampen demand-driven inflation.

Notably, the US real estate sector contributes over 15% to the US economy. US private consumption contributes over 60% to the economy.

Economists forecast building permits to fall by 1.2% and housing starts by 0.8%.

Beyond the numbers, investors must consider Fed commentary. Hawkish comments regarding inflation and interest rates could affect buyer demand for the GBP/USD.

Short-Term Forecast

Near-term trends for the GBP/USD will depend on the UK (Wed) and US (Fri) inflation numbers. Softer-than-expected UK inflation numbers could fuel bets on an H1 2024 BoE rate cut.

GBP to USD Price Action

Daily Chart

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

A GBP/USD move to the $1.27000 handle would give the bulls a run at the $1.28013 resistance level.

On Tuesday, the focal points will include UK CBI Industrial Trend Orders, BoE and Fed commentary, and US housing market data.

However, a GBP/USD drop below the $1.26500 handle would signal a fall to the 50-day EMA.

The 14-period daily RSI reading of 58.18 suggests a GBP/USD move to the $1.28013 resistance level before entering overbought territory.

4-Hourly Chart

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

A return to the $1.27000 handle would bring the $1.28013 resistance level into play.

However, a break below the 50-day EMA could signal a fall to the 200-day EMA.

The 14-period RSI on the 4-hour Chart at 50.63 indicates a GBP/USD move through the $1.27500 handle before entering overbought territory.