GBP/USD Forecast Dec. 14, 2011, Fundamental Analysis

Before the FOMC meeting, the pair showed some fluctuations with more downside tendency amid mixed vibes in the market ahead of the year-end holidays.

The Fed is expected to keep interest rate at its low level of 0.25%, while, on the other hand, the BoE kept interest rate at 0.50% and APF at 275 billion pounds last week.

In the market, the sentiment was mixed with more downside tendency after Fitch raised concerns that debt woes in the euro area would continue in 2012 as it said on Monday the decisions announced in last week’s EU summit, which Fitch described as incomprehensive, are not enough to ease pressure on the euro zone nations.

On the other hand, a successful bond selling by the EFSF and the Spanish government made some improvement in the sentiment.

The ESFS sold 1.97 billion euros of 91-day notes with an average yield of 0.2222%, while the Spanish government also saw a successful bond selling which witnessed higher demand and lower yield. The Treasury sold 4.94 billion euros of 12-month notes with an interest of 4.050% from 5.022% the previous auction. The demand climbed to 3.14 times compared with 2.13 in the prior auction.

Data from the U.K. did not have much impact on the pair’s movement. U.K. inflation rate slowed down to 4.8% in November, according to the consumer price index annual gauge.

The data came in line with expectations and the latest BoE forecasts which noted that inflation will retreat sharply within the course of 2012 and continue its fall till it approaches the target by the end of 2012.

Thus, amid the current slowdown in growth and receding inflation, the BoE may increase stimulus at the beginning of 2012 to boost the economy.

Probably, the BoE will announce further stimuli after in February with the end of the 75 asset purchase program and with the release of the coming inflation report that will provide an update about the latest growth and inflation outlooks.