The Pound Sterling (GBP) is trading cautiously above the key 1.2700 level against the US Dollar (USD) on Monday, remaining broadly stable despite growing expectations of a Federal Reserve interest rate cut. According to the CME FedWatch tool, the probability of a 25 basis point rate reduction by the Fed at its December 18 meeting has risen to 83%, up from 62% a week ago. Despite this, the US Dollar remains resilient, with the US Dollar Index (DXY) climbing near 106.20.
The shift in market sentiment followed the release of November’s US Nonfarm Payrolls (NFP), which showed stronger-than-expected job growth at 227,000, surpassing the forecasted 200,000. While the Unemployment Rate rose to 4.2%, Average Hourly Earnings saw an uptick of 0.4% month-on-month, and 4% year-on-year, surpassing projections. However, Federal Reserve Governor Michelle Bowman tempered rate cut expectations, emphasizing caution in policy adjustments due to persistent inflation concerns.
As inflation remains a key focus, investors are now awaiting the release of the US Consumer Price Index (CPI) for November, due on Wednesday. Headline CPI is expected to edge up to 2.7%, while core CPI is anticipated to remain steady at 3.3%.
In the UK, the Pound is supported by ongoing concerns over persistent inflation, with the Bank of England (BoE) expected to adopt a cautious approach to rate cuts. BoE officials, including Governor Andrew Bailey and external committee member Megan Greene, have indicated that inflation control remains a priority, although the disinflation process is progressing. BoE Deputy Governor Dave Ramsden is set to speak on Monday, with market participants keen to hear his stance on future rate adjustments.
Meanwhile, a report from the Recruitment and Employment Confederation (REC) revealed a decline in UK labor demand, exacerbated by the government’s recent increase in National Insurance Contributions. The demand index fell to its lowest level since August 2020, highlighting concerns about the UK’s economic outlook.
Technically, GBP/USD is currently holding near its 20-day Exponential Moving Average (EMA) at 1.2720, after failing to break the key resistance at 1.2800. The 14-day Relative Strength Index (RSI) suggests a sideways trend, with support expected around 1.2500 and resistance at the 200-day EMA.
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