GBP/USD saw a sharp decline on Thursday, losing over 1% as it dropped below the 1.2400 level for the first time in nearly ten months. The move marked a cautious start to the new trading year, with market volumes remaining thin following the New Year’s holiday. However, the prevailing sentiment is decidedly risk-off, contributing to the Pound’s weakness.
With economic data from the UK remaining light for the rest of the week, traders are focusing on U.S. economic indicators for direction. On Friday, the U.S. will release its Purchasing Managers Index (PMI) for December, with the ISM Manufacturing PMI expected to remain steady at a contractionary 48.4, in line with the preliminary reading. Despite a slight month-over-month increase, U.S. businesses are facing a subdued outlook for early 2025, driven by cooling domestic demand.
In addition, UK data, including Money Supply and Mortgage Approvals, is due for release on Friday, but these figures are unlikely to have a significant impact on market sentiment.
Outlook for GBP/USD: Limited Upside as Rate Differentials Weigh
The primary focus for GBP/USD traders in the first half of 2025 will be the interest rate differential between the Federal Reserve and the Bank of England. The Fed has signaled that it will deliver fewer rate cuts than previously expected, with only two 25 basis point cuts projected for the year, according to its December Summary of Economic Projections (SEP). This diverging path is likely to keep the U.S. Dollar supported.
GBP/USD Price Forecast
The pair has fallen back below the 1.2400 level and is poised for further declines, with the next potential support around the 1.2300 mark. The 50-day Exponential Moving Average (EMA) is firmly in bearish territory, having crossed below the longer-term 200-day EMA near 1.2780, which suggests continued downward pressure on the pair in the near term.
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