GBP/USD Retreats to $1.2663 as Inflation Hits 2.3% and USD Strengthens

Governor Andrew Bailey expressed concerns over persistent inflation, particularly in services, signaling that rate cuts may not be imminent. This sentiment is shared by hawkish BoE member Catherine Mann, who highlighted challenges in achieving the BoE’s 2% target.

While markets previously anticipated an 80% likelihood of a December rate cut, this outlook has shifted as traders now consider the possibility of delayed monetary easing.

USD Strength Weighs on GBP/USD Performance

The GBP/USD pair’s decline also stems from a robust US Dollar, as the Dollar Index (DXY) surged to approximately 106.50. Investors are revising their expectations for Federal Reserve (Fed) rate cuts in 2025, following remarks from Fed Chair Jerome Powell emphasizing the economy’s resilience.

Adding to the USD’s strength are market expectations tied to President-elect Donald Trump’s economic policies. Proposed measures, including a 10% increase in import tariffs and tax cuts, are projected to bolster domestic demand, inflation, and employment.

These factors have reduced the probability of a Fed rate cut in December to 59%, down from 82% last week.

The combination of a stronger USD and reduced Fed easing expectations has added downward pressure to the GBP/USD, limiting recovery efforts and reinforcing the pair’s bearish bias.

Technical Outlook: GBP/USD at a Pivotal Point

The GBP/USD is consolidating within a symmetrical triangle on the 2-hour chart. Immediate resistance at $1.26805, near the 50 EMA, remains crucial. A breakout above this level could drive the pair toward $1.27133, followed by $1.27592 and $1.28088.

Conversely, support at $1.26490 aligns with the ascending trendline, with additional levels at $1.25967 and $1.25498.

Key Insights:

• Pivot Point: $1.26490.

• Resistance Levels: $1.26805, $1.27133, $1.27592.

• Support Levels: $1.26490, $1.25967, $1.25498.

With RSI at 50.66 signaling neutral momentum, traders should monitor for a breakout, which could determine the pair’s near-term trajectory.