GBP/USD Resumes Uptrend Driven by US Economic Data and Fed Rate Cut Expectations
- The GBP/USD currency pair rebounded on Friday, recovering some of Thursday’s losses against a strengthening US Dollar.
- US inflation data, specifically Core PCE, remained steady, reinforcing expectations of a Federal Reserve interest rate cut in December.
- Consumer sentiment in the US showed a modest improvement, though overall views remain cautious, with inflation expectations declining.
- Technical indicators suggest potential for further GBP/USD consolidation, with key resistance at the 100-day SMA and support below 1.3300.
- The British Pound is showing resilience despite domestic concerns, while the Bank of England is also anticipated to cut rates in its upcoming meeting.
GBP/USD Analysis: US Inflation and Fed Rate Cut Outlook
The GBP/USD exchange rate saw a positive turn on Friday, with the pair climbing as the US Dollar experienced a correction. This move comes after the latest US inflation figures were released, which have solidified market expectations for the Federal Reserve to implement an interest rate cut at its December meeting. This sentiment continues to weigh on the Greenback, allowing the Sterling to gain traction.
The Core Personal Consumption Expenditures (PCE) Price Index, a key inflation gauge closely watched by the Fed, showed no month-over-month change in September, holding steady at 0.2%. This figure matched the previous month’s reading and aligned with market forecasts. On an annual basis, the PCE inflation rate eased slightly, ticking down from 2.9% to 2.8% over the twelve months ending in September.
💡 Understanding Core PCE: This inflation measure excludes volatile food and energy prices, offering a clearer view of underlying price trends and thus a primary focus for the Federal Reserve when setting monetary policy.
Concurrently, consumer sentiment in the United States experienced an uptick. The University of Michigan Consumer Sentiment index for December rose to 53.3, surpassing the expected 52 and showing an improvement from November’s final reading of 51. Despite this positive note, the survey’s director indicated that consumers express modest improvements but maintain a generally somber outlook.
Americans’ immediate inflation expectations have also softened. One-year ahead inflation expectations decreased from 4.5% to 4.1%. Similarly, the outlook for inflation over a five-year horizon saw a decline from 3.4% in November to 3.2%. This easing inflation outlook supports the market’s view of potential Federal Reserve easing.
📊 Market Odds: Based on the latest data, market-implied probabilities for a 25 basis point (bps) Federal Reserve rate cut at the upcoming meeting remained high, standing at approximately 84%, according to data from Capital Edge.
Following the release of this economic data, the GBP/USD pair demonstrated upward momentum, pushing towards the 1.3350 level. Earlier, the pair had been trading in a narrower range around 1.3340. The observed weakening of the US Dollar further contributed to this upward movement, as markets digested the implications for future monetary policy.
Analysts at Morgan Stanley anticipate a series of rate cuts from the Fed, projecting a 25-bps reduction in December, followed by further cuts in January and April 2026. Their forecast suggests the Federal funds rate could ultimately settle within the 3%-3.25% range.
GBP/USD Technical Outlook and Price Forecast
From a technical perspective, the GBP/USD pair appears to be facing resistance around the 100-day Simple Moving Average (SMA), currently situated at approximately 1.3365. Despite trading above the 200-day SMA at 1.3326, sustained upward momentum may be challenged by this critical technical level. Consequently, further consolidation is a plausible scenario in the short term.
📍 Key Levels to Watch: With the Federal Reserve’s next policy meeting on the horizon, a decisive breach of the 100-day SMA could pave the way for further gains. The next significant resistance level to monitor would be the 1.3400 psychological mark. Should this level be surpassed, the pair could target the October 17 high of 1.3471, before potentially reaching the 1.3500 figure.
Conversely, a downturn below the 1.3300 handle would expose the 50-day SMA, located near 1.3264, to further selling pressure. Below this, the 1.3200 level represents a more significant support area.
Pound Sterling Performance This Week
The following table illustrates the weekly percentage changes of the British Pound (GBP) against other major world currencies. Notably, the Sterling has demonstrated its strongest performance against the Swiss Franc this week.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.42% | -0.77% | -0.54% | -0.89% | -1.39% | -0.79% | 0.12% | |
| EUR | 0.42% | -0.35% | -0.11% | -0.47% | -0.98% | -0.37% | 0.54% | |
| GBP | 0.77% | 0.35% | 0.50% | -0.12% | -0.63% | -0.03% | 0.90% | |
| JPY | 0.54% | 0.11% | -0.50% | -0.35% | -0.87% | -0.26% | 0.65% | |
| CAD | 0.89% | 0.47% | 0.12% | 0.35% | -0.56% | 0.10% | 1.01% | |
| AUD | 1.39% | 0.98% | 0.63% | 0.87% | 0.56% | 0.61% | 1.53% | |
| NZD | 0.79% | 0.37% | 0.03% | 0.26% | -0.10% | -0.61% | 0.92% | |
| CHF | -0.12% | -0.54% | -0.90% | -0.65% | -1.01% | -1.53% | -0.92% |
This heatmap visually represents the weekly percentage changes among major global currencies. The base currency is selected from the left column, and the quote currency from the top row. For instance, the intersection of the British Pound (left) and the US Dollar (top) shows the weekly performance of GBP against USD.
Frequently Asked Questions about GBP/USD and Fed Policy
What is the Federal Reserve’s preferred inflation measure?
The Federal Reserve primarily monitors the Core Personal Consumption Expenditures (PCE) Price Index to gauge inflationary pressures, as it excludes volatile food and energy prices.
How is US inflation data influencing Fed rate cut expectations?
Steady or declining US inflation figures, along with moderating inflation expectations, increase the likelihood of the Federal Reserve considering interest rate cuts in the near future, particularly at upcoming policy meetings.
What does the technical outlook suggest for GBP/USD?
Technically, GBP/USD is facing resistance near the 100-day SMA. A break above this level could signal further upside, while failure to do so might lead to consolidation or a move lower towards support levels.
What is the Bank of England’s likely stance on interest rates?
Following a pause in its rate-setting cycle, the Bank of England is also widely expected to implement a 25 basis point rate cut at its upcoming December meeting.
GBP/USD: Key Takeaways and Future Outlook
The GBP/USD pair’s recovery on Friday underscores the sensitivity of currency markets to US economic data and central bank policy signals. The sustained strength in the US Dollar is directly influenced by the Federal Reserve’s monetary policy path, particularly regarding interest rates.
Sterling’s performance, despite domestic economic data, shows resilience. However, the prospect of interest rate cuts from both the Federal Reserve and the Bank of England in the near future adds a layer of complexity for traders analyzing the GBP/USD pair.
Investors and traders will be closely watching upcoming economic releases and central bank communications for further clues on the direction of monetary policy. The technical levels discussed provide key reference points for assessing potential short-term movements in the GBP/USD exchange rate.
