The GBP/USD pair continued its upward momentum on Wednesday, reaching around 1.2780 during the Asian trading session, marking a third consecutive day of gains. The British Pound (GBP) is gaining support against its major counterparts, bolstered by growing confidence that the Bank of England (BoE) will hold its interest rates steady at 4.75% in its upcoming December policy meeting.
BoE officials are widely expected to vote for maintaining the current rate, particularly as UK inflation has edged up once more, following a brief dip below the central bank’s 2% target. The BoE had previously forecast a rebound in inflation, after a temporary alignment with the target range earlier this year.
Looking ahead, traders are closely monitoring the release of key UK economic data, including October’s monthly Gross Domestic Product (GDP) and figures for Industrial and Manufacturing Production. Economists project growth in factory output and GDP following the decline in these metrics in September.
Despite GBP’s recent strength, the pair’s upside potential may face limitations due to support for the US Dollar (USD) stemming from market caution ahead of the US Consumer Price Index (CPI) data, set for release later Wednesday. The US CPI is forecast to rise to 2.7% year-over-year in November, up from 2.6% in October, while core CPI, excluding food and energy, is expected to increase 3.3% YoY.
Any signs of stagnating inflation in the US could dampen expectations of a Federal Reserve rate cut. Nevertheless, markets are pricing in an 85.8% chance of a 25-basis point rate reduction by the Fed, according to the CME FedWatch Tool.
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