Gbp/usd drops as improved us economic data contrasts with steady uk rates

GBPUSD Analysis

Performance after Thursday
Period	Pct	Chg	Momentum
Thursday	-0.64%	-80.8 Pips
Week to-date	-0.99%	-124.7 Pips
December	-1.53%	-193.8 Pips

Upcoming key events (London Time)

Fri 07:00 AM GBP Retail Sales Volumes (1-mth)
Fri 01:30 PM USD PCE Price Index, excluding food and energy (12-mth)

What happened lately

In the U.S., the Manufacturing Business Outlook Survey saw a significant decline, dropping to -16.4 points in December from -5.5 points in November, according to the Philadelphia Fed. Meanwhile, the Bureau of Economic Analysis reported an increase in U.S. GDP’s annual rate, rising to 3.1% in Q3 from 2.8% in Q2, and a slight rise in the PCE excluding food and energy prices to 2.2% from 2.1%. Unemployment insurance claims showed improvement, falling to 220,000 for the week ending 14 December, as per the Department of Labor. The Bureau of Economic Analysis noted that the GDP Price Index remained at 1.9% in Q3.

The Federal Reserve lowered the Federal Funds Rate to 4.5% from 4.75%, a move signaling caution on further rate reductions. Interest rate projections showed mixed signals, with the first-year rate rising to 3.9% from 3.4%, the second year at 3.4% up from 2.9%, the third year at 3.1% from 2.9%, and longer-term projections increased to 3% from 2.9%, while the rate for the year remained unchanged at 4.4%.

In the U.K., the Bank of England kept its interest rate at a steady 4.75%. November’s economic indicators reveal nuanced movements, as recounted by the Office for National Statistics. The Core CPI Inflation Rate rose slightly to 3.5% from 3.3%, and the Consumer Prices Index grew to 2.6% over a 12-month period, up from 2.3%. Meanwhile, the Retail Price Index for November showed a marginal increase to 3.6% from 3.4%, whereas monthly figures showed a drop to 0.1% from 0.5% in October.

For the GBP/USD, the observed drop of 0.64% to 1.25027 could be influenced by a combination of improved U.S. economic growth, indicated by rising GDP and employment data, against relatively static monetary policy moves in the U.K. The U.K.’s unchanged interest rates contrast the Fed’s decision to cut rates, potentially diminishing the appeal of sterling investments. Upcoming economic data, such as the U.K. retail sales and U.S. PCE Price Index, may further shape market expectations and influence GBP/USD movements.

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What can we expect from GBPUSD today?

GBPUSD on Thursday dropped -0.64% to 1.25027. Price is below 9-Day EMA while Stochastic is falling.

Updated daily direction for GBPUSD looks bearish as the pair posted lower in Thursday trading session.

Looking ahead for the day, immediate support level is at S1 1.24426 with break below could see further selling pressure towards S2 at 1.23825. To the upside, with the current momentum bearish, we prefer to look at breakout of the recent daily high of 1.26668 as a potential indicator of buying interest. Failure to break the resistance level would continue to echo bearish sentiment. A close below 1.24946 would indicate selling pressure.

For the week to-date, take note that GBPUSD is bearish as the pair posted lower by -0.99%.

Key levels to watch out:

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