GBP to USD Forecasts Bears to Target Sub-$1.23 on the UK CPI Report

It is a busy morning for the GBP/USD. November inflation numbers for the UK will be in focus.

There is uncertainty about the Bank of England’s near-term monetary policy goals. On Tuesday, the BoE Financial Stability Report suggested the need for stable employment conditions for households to weather the storm.

However, the UK unemployment rate rose in October, with November claimant counts pointing to deteriorating labor market conditions.

Today’s inflation figures will give investors a better sense of what to expect beyond the Thursday move. Hotter-than-expected inflation figures could fuel bets of a more hawkish policy outlook and also raise concerns over the economic outlook.

Economists forecast the UK annual inflation rate to soften from 11.1% to 10.9%. Softer-than-expected numbers could see the GBP/USD give up some of Tuesday’s Gains.

With the Bank of England delivering its final policy decision of the year on Thursday, there are no BoE speeches for the markets to consider.

GBP/USD Price Action

At the time of writing, the Pound was down 0.14% to $1.23474. A mixed start to the day saw the GBP/USD rise to an early high of $1.23740 before falling to a low of $1.23419.

Technical Indicators

The Pound needs to move through the $1.2352 pivot to target the First Major Resistance Level (R1) at $1.2456. A move through the Tuesday high of $1.24439 would signal a bullish session. However, today’s CPI report will need to be hotter than expected to support a pre-Fed breakout.

In the case of an extended rally, the GBP/USD would likely test the Second Major Resistance Level at $1.2548. The Third Major Resistance Level (R3) sits at $1.2744.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.2260 in play. However, barring a CPI Report and Fed-fueled sell-off, the GBP/USD should avoid sub-$1.2250 and the Second Major Support Level (S2) at $1.2156.

The Third Major Support Level (S3) sits at $1.1961.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The GBP/USD sits above the 50-day EMA, currently at $1.22317. The 50-day EMA pulled away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above S1 ($1.2260) and the 50-day EMA ($1.22317) would support a move through R1 ($1.2456) to target R2 ($1.2548). However, a GBP/USD fall through S1 ($1.2260) and the 50-day EMA ($1.22317) would bring S2 (1.2156) into view. The 200-day EMA sits at $1.19338.

The US Session

It is another big day ahead. The Federal Reserve delivers its final interest rate decision of the year.

Following the CPI Report, the markets expect a 50-basis point rate hike. Barring a surprise move, the FOMC economic projections and the Fed Chair Powell press conference will likely have the most influence.

A less hawkish outlook on interest rates, downward revisions to inflation forecasts, and a soft landing would support riskier assets and the GBP/USD.