GBP/USD Analysis and Charts

• US dollar rebound looks tepid.
• UK inflation data is now key for 2024 rate expectations.

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Sterling retains most of last week’s gains as we head towards the festive break, with cable testing 1.2700 as the US dollar slips in early trade. The greenback picked up a bid on Friday after Federal Reserve voting members, John Williams and Raphael Bostic both pushed back against market expectations of a series of rate cuts next year. Mr. Williams said in an interview that the Fed ‘isn’t really talking about rate cuts right now’, while Mr. Bostic said that the US central bank will likely cut rates twice next year, starting ‘sometime in the third quarter’. Current market pricing sees the Fed cutting rates six times, starting in March, for a total of 150 basis points.

While Friday’s remarks from Williams and Bostic reversed the recent US dollar sell-off, it is unlikely that the recent strength in the US dollar will last for too long.

Ahead this week, the latest look at UK inflation and the final Q3 GDP report. UK inflation has been moving lower over the past months and a further move lower will increase pressure on BoE Governor Andrew Bailey to acknowledge that rates will move lower next year, in contrast to his hawkish tone at the last MPC meeting.

GBP/USD is just under 1.2700 in early turnover after Friday’s sell-off. Support for the pair starts around 1.2630 down to 1.2600 and this should hold going into the end of the year. The recent multi-week high at 1.2791 and the 23.6% Fibonacci retracement at 1.2826 will provide resistance in the coming days.

GBP/USD Daily Price Chart

Retail trader GBP/USD data show 49.10% of traders are net-long with the ratio of traders short to long at 1.04 to 1.The number of traders net-long is 5.35% higher than yesterday and 8.44% lower than last week, while the number of traders net short is 5.86% higher than yesterday and 1.17% lower than last week.

What Does Changing Retail Sentiment Mean for GBP/USD Price Action?

Charts using TradingView

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