BoE Rate Cut Expectations Heat Up, Bearish Outlook for the Mid-Term

Central Bank

Forex

Summary:

The Bank of England's (BoE) December interest rate decision has kept the benchmark rate at 4.75%, yet the potential for further rate hikes remains on the horizon due to persistent inflationary pressures. The BoE Governor has begun to signal a dovish stance, with market expectations for future rate cuts gathering momentum.

SELL GBPUSD

Close Time

CLOSED

1.25320

Entry Price

1.22600

1.26200

1.37419 -0.00674 -0.49%

272.0

Pips

Profit

1.22600

1.22592

Exit Price

1.25320

Entry Price

1.26200

Fundamentals

On the last Thursday of the month, the BoE's Monetary Policy Committee (MPC) resolved to maintain the benchmark interest rate at 4.75%. The minutes from the meeting revealed that the current inflation rate in the UK has surpassed earlier forecasts and is anticipated to continue its upward trajectory in the near term, thereby constricting the BoE's scope for rate reductions.

Prior to this, data from the Office for National Statistics indicated that the UK's Consumer Price Index (CPI) for November climbed to 2.6%, marking an eight-month high. The core CPI, which excludes prices for energy, food, alcohol, and tobacco, surged to 3.5%. Concerns over escalating inflation have compelled the BoE to sustain elevated interest rates, despite the adverse impact on economic growth due to high borrowing costs. This dichotomy is intensifying the pressures on the UK's economic trajectory.

However, in light of elevated inflation, an increasing contingent within the BoE is advocating for an immediate rate cut. The voting results from the last Thursday's meeting showed a split decision, with six members in favor of the status quo and three advocating for a rate reduction, contrasting with prior expectations that only one member would support a cut.

Concurrently, BoE Governor Bailey stated in a communiqué, "We continue to believe that a gradual approach to rate cuts remains appropriate. However, amidst growing economic uncertainties, we cannot specify the timing or magnitude of any rate reductions in the coming year." The Governor's dovish overtures have fueled market speculation regarding the prospect of imminent rate cuts.

Technical Analysis

BoE Rate Cut Expectations Heat Up, Bearish Outlook for the Mid-Term_1

From a daily chart perspective, the GBPUSD has exhibited a series of lower highs and lows, signaling a pronounced bearish trend in the short term. The moving average system is in a bearish configuration, reinforcing the durability of the downtrend. Additionally, the Relative Strength Index (RSI) has dipped below the 40.00 threshold, suggesting an increased likelihood of further declines if the index remains sub-40.

Moreover, the GBPUSD's daily chart has formed a head and shoulders pattern, with the neckline breached. The current price action has retraced to the neckline, exhibiting signs of weakening, which corroborates the confirmation of the head and shoulders pattern, indicating a further descent in the asset's value.

In summary, traders are advised to consider a strategy of selling on rallies at present.

Trading Recommendations

Trading Direction: Sell

Entry Price: 1.2530

Target Price: 1.2260

Stop Loss: 1.2620

Valid Until: January 9, 2025, 23:00:00

Support: 1.2474/1.2298/1.2036

Resistance: 1.2613/1.2727/1.2810

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