GBP to USD Forecast: UK Inflation and US Consumer Confidence in Focus

Highlights

• The GBP/USD gained 0.67% on Tuesday, ending the session at $1.27316.
• On Wednesday, UK inflation numbers for November will impact buyer demand for the Pound.
• Later in the session, US Consumer Confidence also needs consideration.

The Tuesday GBP/USD Overview

On Tuesday, the GBP/USD gained 0.67%. After a 0.25% loss on Monday, the GBP/USD ended the day at $1.27316. The GBP/USD fell to a low of $1.26329 before rising to a Tuesday high of $1.27617.

UK Inflation in the Spotlight

On Wednesday, UK inflation numbers for November will garner investor interest. On Thursday, the Bank of England left interest rates unchanged at 5.25%. However, three members of the Monetary Policy Committee unexpectedly voted for a 25-basis point rate hike. Bank of England Governor Andrew Bailey continued pouring cold water on interest rate cut discussions.

Softer-than-expected inflation figures could change the narrative. Economists forecast the annual inflation rate to soften from 4.6% to 4.4% and core inflation to ease from 5.7% to 5.6%.

Notably, sticky inflation could force the BoE to maintain a hawkish rate path. An elevated inflation and interest rate environment impacts disposable income and consumer spending. UK consumption contributes more than 60% to the UK economy. Downward trends in consumer spending would elevate the chances of a UK recession.

US Consumer Confidence in Focus

Later in the Wednesday session, US consumer confidence will warrant investor attention. An upward trend in consumer confidence could fuel consumer spending and demand-driven inflation. A positive outlook on consumer spending could lead the Fed to maintain a hawkish stance on interest rates.

An elevated interest rate environment would affect borrowing costs and disposable income. The net effect would be a pullback in consumer spending and demand-driven inflationary pressures.

Economists forecast the CB Consumer Confidence Index to increase from 102.0 to 104.0 in December. Other stats include existing home sales and current account numbers. However, these will likely play second fiddle to the consumer confidence survey-based figures.

With consumer confidence in the spotlight, investors must consider Fed commentary. Support for interest rates at current levels could fuel demand for the US dollar.

Short-Term Forecast

Near-term GBP/USD trends will hinge on the UK and US (Fri) inflation numbers. Softer-than-expected UK inflation numbers may raise bets on an H1 2024 BoE rate cut. In contrast, sticky US inflation would reduce bets on a Q1 2024 Fed rate cut and tilt monetary policy divergence toward the US dollar.

GBP to USD Price Action

Daily Chart

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

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

On Wednesday, UK inflation and US consumer confidence will influence the buyer demand for the GBP/USD.

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

The 14-period daily RSI reading of 61.26 indicates a GBP/USD break above the $1.28013 resistance level before entering overbought territory.

4-Hourly Chart

The GBP/USD remained 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 bring sub-$1.26 and the 200-day EMA into view.

The 14-period RSI on the 4-hour Chart at 59.10 suggests a GBP/USD break above the $1.28013 resistance level before entering overbought territory.