Pound Sterling faces a period of consolidation as investors await crucial US Q4 GDP data. Despite robust UK PMIs prompting expectations of hawkish guidance from the Bank of England (BoE), the GBP/USD remains in a sideways movement ahead of central bank policy decisions. The BoE is expected to maintain interest rates at restrictive levels for a longer duration, supported by strong PMI data for December. The market sentiment hinges on the upcoming US Q4 GDP data, with upbeat results likely reducing the chances of an early Fed interest rate cut, thereby bolstering the US Dollar.
In the wake of a slight cautious mood, the GBP/USD pair nears 1.2700 against the US Dollar. A surge occurred after robust preliminary UK PMI data for January, where the Manufacturing PMI rose to 47.3 and Services PMI expanded to 53.8. Improved manufacturing activities, eased price pressures, lower borrowing costs, and a faster economic recovery contributed to this positive trend. The BoE is anticipated to maintain interest rates at 5.25%, with a focus on fresh guidance for the interest rate outlook.
The US Dollar Index (DXY) has experienced a sharp recovery, nearing 103.30, driven by increased demand for safe-haven assets ahead of significant economic data. The consensus projects a slower growth rate of 2.0% for the US economy in Q4 2023, potentially influencing expectations of a Federal Reserve (Fed) rate cut in March. Stronger-than-expected numbers could reinforce the narrative of higher-for-longer interest rates. Pound Sterling’s technical analysis indicates consolidation around 1.2700, with the broader trend remaining positive, sustained above the 20- and 50-day Exponential Moving Averages (EMAs). The 14-period Relative Strength Index (RSI) suggests a decline in volatility, with a potential downside move if the Cable falls below crucial support at 1.2650.
