Today, let's turn to the GBPUSD pair and see, first of all, what is the general outlook of the UK's monetary policy.
Markets are betting policymakers will mostly deliver on five quarter-point cuts this year with the first such reduction starting in June.
This is despite BOE Governor Andrew Bailey insisting that it’s too soon to consider a policy pivot.
There’s growing speculation that the BOE will be forced to abandon the higher-for-longer messaging kept at its December meeting, which notably contrasted with more dovish communications from the Fed.
The BOE is likely to lower its inflation forecasts at the next meeting on Feb. 1 after November’s reading came in much lower than expected at under 4%.
While the UK may have suffered a minor recession in the second half of 2023, its growth picture is beginning to brighten. The BOE’s new forecasts could reflect lower borrowing costs expected by markets, softer inflation and growing wages in real terms. The central bank will also provide its annual assessment of the economy’s medium-term growth potential in February.
Bloomberg Economics comments on the situation as follows:
“The outlook for CPI inflation has improved dramatically in recent months. We think it will fall below the BOE’s 2% target in the spring, providing ample space for the central bank to start easing. The first cut is likely to come in May, with rates ending 2024 at 4%.”
Turning to today's situation, the GBPUSD movement will be determined by the publication of the UK GDP and industrial production report for November last year. If the estimates are lower than the forecasted value, it will push GBPUSD down to 1.273.
The final recommendation is to sell GBPUSD provided that the actual GDP and industrial production estimates come in below forecasts.
The profit could be fixed at 1.273. Loss — at the level of 1.282.