The British Pound is in a tight spot against the US Dollar!
Today's UK inflation data revealed a softer-than-expected CPI report (check it out: https://investinglive.com/news/uk-november-cpi-32-v-35-yy-expected-20251217/), which has sent shockwaves through the market. The data missed estimates, indicating that price pressures were not as intense as anticipated in November. But here's where it gets interesting: this news has both solidified expectations and sparked some controversy.
On one hand, it's now almost certain that the Bank of England (BOE) will cut interest rates this week. But on the other hand, it has also fueled speculation of a quicker follow-up move in the new year, which is a bit of a surprise. As a result, the pound is feeling the heat, with GBP/USD facing challenges on two fronts. The dollar's strength across the board isn't helping matters either.
GBP/USD is currently hovering around 1.3330, down 0.7% for the day. It's a slight recovery from the lows of 1.3311, but the technical picture has dramatically shifted in favor of sellers. Let's dive into the charts to understand why.
The hourly chart reveals a significant break below the crucial 100 (red line) and 200-hour (blue line) moving averages, a first since November 24th. This suggests a shift towards a more bearish sentiment, even though the overall market conviction regarding the BOE's actions remains largely unchanged. And here's the part most people miss: traders are now pricing in approximately 69 basis points of rate cuts through 2026, only a slight increase from the 67 bps expected before the CPI report.
But wait, there's more. The next full 25 bps rate cut, after this week's cut, is now anticipated for April 2026, which is earlier than the previous July 2026 estimate. So, the market is definitely reacting to the news. However, the stronger dollar is also adding fuel to the fire, pushing GBP/USD lower.
The daily chart provides further evidence for a bearish outlook. The 100 (red line) and 200-day (blue line) moving averages are converging around 1.3345-59, and the recent drop is threatening to break through this key level, reinforcing the sellers' advantage. And this is where it gets controversial—the near-term breakdown, combined with the daily chart analysis, gives sellers even more reason to push GBP/USD lower in the upcoming sessions.
There's some minor support near 1.3300, but if that fails, the pair could be in for a steeper fall, according to the charts. But here's the twist: the dollar's recent vulnerability in December trading might throw a spanner in the works. With only three more trading days before the holiday season kicks in, liquidity will be affected, making market moves harder to interpret.
So, will the pound recover, or is a steeper decline on the cards? What's your take on the market's reaction to the UK inflation data? Share your thoughts in the comments below!
