GBP to USD Forecast: US Private Sector Data’s Influence on Trends

Highlights

• The GBP/USD rose by 0.22% on Tuesday, ending the session at $1.27239.
• Market bets on a Q1 2024 Fed rate cut supported a GBP/USD return to the $1.27 handle.
• On Wednesday, US private sector economic indicators warrant consideration.

The Tuesday GBP/USD Overview

On Tuesday, the GBP/USD rose by 0.22%. Following a 0.05% gain on Friday, the GBP/USD ended the day at $1.27239. The GBP/USD fell to a low of $1.26844 before striking a high of $1.27305.

Monetary Policy Divergence Tilts Toward the Pound

UK inflation numbers for November fueled expectations of a shift in the Bank of England’s forward guidance. However, a larger-than-expected increase in UK retail sales signaled a likely pickup in demand-driven inflation.

An upward trend in consumer spending would fuel demand-driven inflation, forcing the BoE to keep rates higher for longer. Significantly, three members of the Monetary Policy Committee (MPC) voted for a 25-basis point rate hike on December 14. The net effect tilted monetary policy divergence toward the Pound despite the UK economy unexpectedly contracting in Q3.

Considering the mixed numbers, investors must monitor Bank of England commentary. Since the Bank of England monetary policy decision, MPC members aligned with recent BoE Governor Andrew Bailey’s attempts to pour cold water on discussions about rate cuts. Hawkish forward guidance would continue to support buyer demand for the GBP/USD.

There are no UK economic indicators for investors to consider on Wednesday.

The US Private Sector Is in the Spotlight

On Wednesday, the Dallas Fed Services Index and Richmond Manufacturing and Services Indexes will garner investor interest. Better-than-expected numbers could fuel bets on a US soft landing. However, the numbers may have a limited impact on the Fed and interest rate intentions.

FOMC members will likely wait for the next US Jobs Report, CPI Report, ISM survey PMIs, and retail sales figures to consider the appropriate rate path.

Economists forecast the Richmond Fed Manufacturing Index to fall from -5 to -6 in December. However, economists predict the Richmond Fed Services Index will remain at 1. Economists expect the Dallas Fed Services Index to increase from -11.6 to -11.5 in December.

On Tuesday, the Dallas Fed Manufacturing Index jumped unexpectedly from -19.9 to -9.3.

Beyond the numbers, FOMC member commentary also warrants consideration. Support for a Q1 2024 Fed rate cut could impact the appetite for the US dollar.

Short-Term Forecast

Near-term GBP/USD trends will likely hinge on central bank commentary and the US economic calendar. However, hawkish forward guidance from MPC members would continue to tilt policy divergence toward the Pound.

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 break above the $1.27500 handle would support a move to the $1.28013 resistance level.

On Wednesday, central bank commentary and US private sector data are the focal points.

However, a GBP/USD drop below the $1.26500 handle would give the bears a run at the 50-day EMA.

The 14-period daily RSI reading of 59.89 suggests a GBP/USD move through the $1.28013 resistance level before entering overbought territory.

4-Hourly Chart

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

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

However, a fall through the 50-day EMA would bring the 200-day EMA into play.

The 14-period RSI on the 4-hour Chart at 58.70 indicates a GBP/USD break above the $1.28013 resistance level before entering overbought territory.