Asset Watch
Tuesday, 14th of January 2025
The Pound Sterling Performance
Markets are closely monitoring the release of December’s Consumer Price Index data for the UK. The YoY Core inflation is anticipated to decline from 3.5% in November to 3.4% in December, while The YoY headline is expected to rise from 2.6% to 2.7%. This inflation dynamic complicates the Bank of England’s ability to cut interest rates more than once in Q1, potentially limiting them to a single rate cut at the February meeting.
However, rising British bond yields could push the government to curtail spending to balance the budget under the Labour Party’s administration. Reduced government spending and cooling inflation, particularly from the services sector, may prompt the Bank of England to accelerate rate cuts, potentially leading to four 25-basis-point reductions by the end of 2025.
The US Dollar Performance
The dollar has gained from promised policies underpinned by Trump’s administration, including tax cuts, measures against illegal immigration, and tariffs, which have spurred inflationary pressures. These factors have cast doubt on the likelihood of the Federal Reserve implementing more than one rate cut this year. Investors are also awaiting December’s US CPI data, which is expected to show the YoY headline rising from 2.7% to 2.9%, while core inflation remains steady at 3.3%.
Chart Source: ADSS Platform
At the start of this year, the GBP/USD pair resumed its downtrend, hitting its lowest levels in over two years yesterday. However, prices rebounded due to profit-taking by traders. Currently, the pair is approaching the high end of the current trading zone located between 1.2383 and 1.2000. A daily close above this level with a break above the descending trendline from the December 6 high could signal a potential rally toward 1.2866, with a possible rebound near 1.2616.
On the flip side, a daily close below the low end of the mentioned trading zone would indicate stronger bearish momentum, potentially driving prices further down to 1.1873.