Pound maintains strong position at 10-week high

• The Fed’s minutes failed to change expectations of looming rate cuts.

• Bank of England Governor Bailey highlighted the risks of sustained inflation growth.

• Markets are pricing in approximately 70 basis points of BoE rate cuts by the end of next year.

On Wednesday, the GBP/USD forecast remained bullish, affirming its strength as the pound sustained its position near a 10-week high against the dollar. Moreover, the Federal Reserve’s recent meeting minutes did little to change expectations that the rate-hike cycle had ended.

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Fed officials emphasized they would only consider raising interest rates if progress in controlling inflation stalled. 

On Tuesday, the British pound reached a 10-week high against a weakened U.S. dollar. Moreover, Bank of England Governor Andrew Bailey reiterated that the central bank’s stance on interest rates would not change.

Furthermore, Bailey expressed confidence in inflation returning to the central bank’s 2% target. However, he highlighted the risks of sustained high price growth, stating that the risks leaned towards the upside. Additionally, Catherine Mann, a more hawkish member of the Bank of England’s Monetary Policy Committee, advocated further tightening to ensure a return to the inflation target. Mann was in the minority when she voted for a 25-basis-point increase in the Bank Rate in November. 

Money market traders believe that UK interest rates have peaked. As such, markets are pricing in approximately 70 basis points of rate cuts by the end of next year. Consequently, it implies nearly three rate cuts by the end of 2024. Last week, markets had estimated around 60 basis points of cuts by the end of next year.

Meanwhile, investors also paid attention to Wednesday’s Autumn Statement. Here, British Finance Minister Jeremy Hunt will announce fiscal policy changes to boost the sluggish economy. 

GBP/USD key events today

• The UK Autumn Forecast Statement
• US initial jobless claims
• US core durable goods orders.

GBP/USD technical forecast: Weakening bulls

The pound made a new high above the 1.2501 key level. However, the move higher made small-bodied candles, a sign of weakness. This weakness is also shown by the RSI, which has made a bearish divergence. Although the price increased, the RSI made a lower high, indicating weaker momentum. 

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Still, the bias is bullish because the price is above the 30-SMA and the RSI above 50. Bulls must regain momentum for this bullish bias to continue. Otherwise, bears might take over with a break below the 30-SMA.

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