GBPUSD may rebound and resume growth in the coming days amid expectations of another rate cut by the Bank of England (BoE).
In December, the UK inflation rate unexpectedly fell to 2.5%, increasing pressure on the Bank of England. Although inflation is still over the BoE’s target at 2% after declining, market’s expectations for monetary easing have risen. The rate cut has the potential to stabilize the UK government bond market and lower borrowing costs. Traders have already reacted to the inflation data by forecasting more BoE rate cuts this year, which eased inflation fears and supported UK assets. However, despite lower inflation, sales of 10-year bonds showed the highest borrowing costs since 2008, indicating the country's continuing financial difficulties.
Meanwhile, the US inflation rate rose by 0.2%, causing GBPUSD to fall. In addition, the data released on January 16 showed that the US retail sales increased by 0.4% (below expected 0.8%) in December, indicating a slowdown in consumer demand due to high borrowing costs and inflation. At the same time, initial jobless claims were also reported rising, which confirms a slowing US economy. These factors are signaling weaker dollar growth and therefore leading to strengthening GBPUSD as investors may reallocate capital in search of higher returns.
The nearest event affecting the quotes is the release of the UK retail sales for December on January 17. They are expected to increase by 0.4% (the growth in November was 0.2%). In case the expectations are met, both the British pound and GBPUSD will grow.
Technical analysis shows a downtrend. RSI being near the level of 30 indicates a possible weakening of the downward momentum and a potential rebound. The MACD indicator also confirms the downtrend.
Suggested options for trading:
Buy GBPUSD at the current price, provided that the UK retail sales are not below forecast. In this case, place a Take Profit at the level of 1.23600 and a Stop Loss at the level of 1.20986.
This content is for informational purposes only and is not intended to be investing advice.
