The GBP/USD currency pair traded higher on Monday and Tuesday. On Monday, there were no clear reasons or grounds for this increase, as the macroeconomic background from the UK and the US did not decisively support the pound or the dollar. Nevertheless, the British currency once again demonstrated a strong desire to rise. We believe that the pound's growth might be linked to the upcoming Federal Reserve and Bank of England meetings, the first of which is set to take place this evening. Let's analyze why the pound has risen and whether it will continue to climb.
On Tuesday morning, the UK released data on unemployment and wages. Some might consider unemployment the more important report, but that's not the case currently. The unemployment rate remained unchanged, and jobless claims came in below forecasts. These reports provided local support for the pound, but the wage report was more significant. Wages in the UK increased by 5.2%, including bonuses, and by 5.2%, excluding bonuses, significantly exceeding forecasts.
The BoE and its representatives have repeatedly expressed concerns about the high pace of wage growth, which fuels inflation. In this case, wages rose even more than expected. What does this suggest? Further inflation growth in the UK and, consequently, the BoE maintaining interest rates at their peak levels for longer than previously anticipated. This factor likely supported the pound.
However, we don't believe this support will be long-lasting. The slower the BoE is to lower rates now, the faster it may need to reduce them later. Nevertheless, the pound continues to seize opportunities to demonstrate its resilience against the dollar.
As for the Fed meeting, the outcome seems relatively predictable. The Fed will likely lower rates by another 0.25% this evening, but this decision can be considered "conditionally hawkish." Recall that the Fed's official stance, as Jerome Powell reiterates, is that "there's no need to rush." Therefore, even today's monetary policy easing does not imply a shift toward more dovish sentiment within the Fed. In 2025, the Fed may take pauses in rate adjustments or wait to see how Donald Trump's potential presidency impacts global trade wars. Trade wars are no secret; they tend to lead to higher tariffs and, consequently, rising prices. Higher prices mean increased inflation, which the Fed aims to combat. Thus, the Fed's rate cuts might be less substantial than anticipated. Or, more accurately, less than what the market has been pricing since early 2024.
From this perspective, the dollar still holds excellent growth potential because the market has priced in a rate reduction of roughly 3%, which may not materialize. The pound, meanwhile, has not yet broken through the 1.2610 level on its first attempt, but this doesn't mean further attempts won't follow.
The average volatility of the GBP/USD pair over the past five trading days is 83 pips, which is classified as "average" for this currency pair. On Wednesday, December 18, we expect movement within the range of 1.2631 to 1.2797. The higher linear regression channel is pointing downward, signaling a bearish trend. The CCI indicator has entered the oversold area again, but the pound may resume its downward trend. Any oversold signal in a bearish trend typically only indicates a correction.
Key Support Levels:
Key Resistance Levels:
- R1 – 1.2695
- R2 – 1.2817
- R3 – 1.2939
Trading Recommendations:
The GBP/USD pair maintains a bearish trend but continues to correct upward. We still do not recommend long positions, as we believe the market has already priced in all potential growth factors for the British currency multiple times.
If you trade using "pure" technical analysis, long positions are possible with targets at 1.2797 and 1.2817, provided the price consolidates above the moving average line. Short positions are currently more relevant, with targets at 1.2573 and 1.2540, but they require fresh consolidation below the moving average line to confirm the trend.
Explanation of Illustrations:
Linear Regression Channels help determine the current trend. If both channels are aligned, it indicates a strong trend.
Moving Average Line (settings: 20,0, smoothed) defines the short-term trend and guides the trading direction.
Murray Levels act as target levels for movements and corrections.
Volatility Levels (red lines) represent the likely price range for the pair over the next 24 hours based on current volatility readings.
CCI Indicator: If it enters the oversold region (below -250) or overbought region (above +250), it signals an impending trend reversal in the opposite direction.
