Cable to React to US CPI, UK GDP

Key data from both sides of the Atlantic could move the GBPUSD this week as traders look for guidance from the Fed and BOE going into the new year.

What's Coming Up

• US inflation is expected to increase slightly, with the core and headline rates rising to 2.7% from 2.6% prior.
• Recent strong data from the US has decreased the odds of a Fed rate cut in March to 28%.
• UK GDP is expected to stall in November from being negative previously as businesses held back ahead of the Autumn Budget.
• Economists see up to three BOE rate cuts this year, but markets are pricing in fewer.

Dollar Hinges on Geopolitics, Awaits Fed

Despite the cable popping higher last Monday, it trended lower for the rest of the week amid dollar strength. The greenback was bolstered as investors remained cautious amid geopolitical developments, including the situation in Venezuela and the lack of progress toward ending the war in Ukraine. Treasury yields also rose after the first Fed speaker of the new year offered his view on policy. FOMC voter Tom Barkin said he expected the economy to accelerate this year, which would make it less likely that the Fed will ease policy, with the odds of a March cut falling to 28% from 50% earlier in the week. The next major data point that could influence the Fed's outlook is Tuesday's release of the December CPI, with analyst consensus that the core inflation rate will increase to 2.7% from 2.6% in November. The headline rate, meanwhile, is expected to stay unchanged at 2.7%. A day later, PPI figures will be released, with October and November data expected simultaneously due to the government shutdown. The November PPI is projected at a monthly rate of 0.3%, unchanged from September.

Economists, Market Disagree on BOE Outlook

The most important data point for the UK side of the cable comes on Thursday, with the release of November's monthly GDP data. However, the market might look past it a little bit, considering that many businesses and investors were holding their breath ahead of the Autumn budget release on the 26th of the month. The consensus is that the UK's economy stalled in November, slightly improving from -0.1% in October. Analysts point to an increase in retail sales in November as a possible source for improvement, but that could be offset by the 5-day doctors' strike.

A slower economy would keep pressure on the BOE to keep easing after cutting rates four times last year. Notably, markets and economists have differing views on this year's rate path, which could affect pound trading as data becomes clearer. Futures suggest there won't be a rate cut until summer, and it might be the only time the BOE will ease this year. Economists, on the other hand, are predicting as many as three rate cuts for 2026. The UK has the highest interest rates of any major economy, but inflation has also been persistently above target. While the BOE says consumer prices have peaked, the evolution of interest rate expectations could hinge on whether the economy remains sluggish.

Can Cable Maintain Bullish Sentiment?

The pound kicked off the trading week on a positive footing, leaving behind support at 1.3390, which coincides with the lower Bollinger Band at 1.3386 and the 1.3400 round support. The 4-hour RSI remains close to the 50 line, suggesting an open door to higher levels, including the upper band at 1.3495 and the 1.3500 handle. A break above the psychological resistance could send prices back to 1.3567, while a breakdown would suggest a double-bottom failure, potentially triggering a more substantial decline to 1.3310.

Source: SpreadEx | GBPUSD, 4-hour Chart