Sterling has been the strongest major currency versus USD this month and remains the top performer among its peers this year.The BoE policy path of interest rate cuts is closer to the Fed than the ECB. A more cautious stance is currently warranted as services inflation is still sticky. An economy less likely to be impacted by Trump’s tariffs might also be helping the pound.
But many analysts believe softer services data in a few months will mean more BoE rate cuts than currently priced in.
GBP/USD had been threatening to break above trendline resistance above 1.28, but prices have turned lower.The Fib level (61.8%) of the April to September move at 1.2729 reinforced this area as a pivotal zone.Next major support sits around 1.25 with the November low at 1.2486. Cable needs to get above 1.2811 to slow the downtrend.
Events Watchlist:
Wednesday, December 18th: FOMC Meeting
Another 25bps rate cut is virtually fully priced in by money markets for this meeting. Traders see at least another 75bps of policy easing next year and the Fed currently also expect to be cutting throughout the year. That said, the risk of lingering tariff-induced inflation from the new President’s trade and fiscal policies could cause a shallower, slower path of easing through 2025, which may add further support to USD. As such, any guidance given by the FOMC will be closely scrutinised though policymakers’ new updated economic projections and dot plots may become rather stale post-Trump’s inauguration.
Thursday, December 19th: Bank of Japan Meeting
Another rate hike is a close call, but most economists think the BoJ will hold rates at 0.25% as it assesses next year’s wage outlook and overseas risks. The bank last raised rates in July, which was seen as a hawkish move and prompted the disorderly unwind of the carry trade. The yen’s depreciation has cooled in recent weeks so is likely no longer a justification for a move at this meeting. Recent private consumption data was also revised down in a sign of the economic recovery’s fragile nature.
Thursday, December 19th: Bank of England Meeting
This final policy meeting of the year could be a non-event as most expect policymakers to keep rates on hold again until February. Rate setters remain laser focused on inflation, and specifically services inflation which continues to remain elevated around 5%. Governor Bailey recently signalled four rate cuts in 2025 if the economy proceeds as expected. The next round of MPC economic forecasts is published in February.Here’s a comprehensive list of other key economic data and events due this week:Monday, 16th December
Tuesday, 17th December
Wednesday, 18th December
Thursday, 19th December
Friday, 20th December
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