GBP/USD retreated 0.55% on Thursday, back below 1.2700.
UK news was quiet, with limited economic data, curbing the flow of GBP.
GBP was weak before Friday.
GBP/USD fell on Thursday, back below the 1.2700 mark, down more than 0.5%, its worst performance in weeks. The US producer price index (PPI) inflation rate rose more than expected in November, and the number of initial jobless claims in the US last week also exceeded forecasts.
The US producer price index inflation rate rose against the trend to 0.4% in November, while the monthly rate of the producer price index in October was revised up from 0.2% to 0.3%. The market expected the monthly rate to be no higher than 0.2%. The core producer price index rose to 3.4% year-on-year, higher than expected, from 3.1% to 3.2% in the previous value. The number of initial jobless claims in the United States last week also rose to a nine-week high of 242,000 in the week ending December 6, further running counter to investors' risk appetite and falling short of expectations of 220,000.
Investor sentiment reached an impasse after the announcement of the PPI inflation rate on Thursday, but market expectations for the Fed's interest rate decision on December 18 have strengthened around 25 basis points. The Chicago Mercantile Exchange's Fed Watch tool shows that interest rate traders are currently pricing in a probability of more than 98% for a 25 basis point rate cut when the Fed meets on December 18.
With a limited European and American economic data schedule on Friday, sterling traders will focus on the Purchasing Managers' Index (PMI) data for the United States and the United Kingdom early next week.
The GBP/USD daily chart shows that GBP/USD has clearly transitioned from the previous bullish phase to a more bearish outlook as prices have recently broken through key technical levels. The 50-day exponential moving average (EMA), currently at 1.2819, has been acting as a strong resistance since mid-November, while the 200-day EMA at 1.2825 reflects a bearish bias. GBP/USD hit resistance at the 50-day EMA at the start of the week, with selling pressure continuing. Moreover, the MACD histogram maintains a downward trend and bearish crossover signals suggest that bearish momentum is gaining momentum.
The latest candlestick chart constitutes a bearish candlestick chart, having closed clearly below 1.2700, indicating that bears are in control. GBP/USD's rebound since late November has been blocked and is facing further downside support. Near-term support is around 1.2600, a psychological level, while a break below this level could lead to a drop to the August lows around 1.2550. On the upside, if buyers recapture the 1.2700 handle, the 50-day EMA will still pose strong resistance and serve as a signal that market sentiment may reverse. Until then, the path of least resistance remains to the downside.
GBP/USD Daily Chart
The British Pound (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. According to 2022 data, the British Pound is the fourth most traded foreign exchange unit in the world, accounting for 12% of all transactions and an average of $630 billion per day. Its main trading currency pairs are GBP/USD (also known as "sterling", accounting for 11% of foreign exchange transactions), GBP/JPY (3%) and EUR/GBP (2%). The British Pound is issued by the Bank of England (BOE).
The most important factor affecting the value of the British Pound is the monetary policy determined by the Bank of England. The Bank of England's decisions are based on whether it has achieved its main goal of "price stability", which is a stable inflation rate of around 2%. The main tool the Bank of England uses to achieve this goal is to adjust interest rates. When inflation is too high, the Bank of England will try to curb it by raising interest rates, which makes it more expensive for people and businesses to get credit. This is usually good for the pound because rising interest rates make the UK a more attractive place to store money for global investors. If inflation is too low, it indicates that economic growth is slowing. In this case, the Bank of England will consider lowering interest rates to make credit cheaper so that companies will borrow more money to invest in growth projects.
UK economic data can measure the health of the economy and have an impact on the value of the pound. Indicators such as GDP, manufacturing and service purchasing managers' indexes, and employment rates can all affect the direction of the pound. A strong UK economy is good for the pound. Not only does it attract more foreign investment, it may also encourage the Bank of England to raise interest rates, which will directly strengthen the pound. Otherwise, if the economic data is weak, the pound is likely to fall.
Another important data for the pound is the trade account. This indicator measures the difference between a country's export revenue and import expenditure over a certain period of time. If a country produces highly sought-after exports, then its currency will fully benefit from the extra demand generated by foreign buyers seeking to purchase those goods. Therefore, a positive net trade balance will strengthen the pound, and vice versa.