FX.co ★ Emilly | GBP/USD

The GBP/USD currency pair experienced a rebound to 1.2540 following the release of US inflation data and the Bank of England's monetary policy decision on Thursday. While the weaker-than-expected US Personal Consumption Expenditures (PCE) inflation data initially boosted the pair, gains were limited by the Bank of England's cautious stance on interest rate cuts and disappointing UK retail sales figures. The US PCE data for November revealed a slowdown in inflationary pressures. The monthly headline PCE rate dropped to 0.1% from 0.2%, and the annual rate rose slightly to 2.4% but remained below expectations. Similarly, the core PCE rate, excluding food and energy, declined to 0.1% from 0.3%, falling short of market forecasts. These figures prompted a significant shift in market expectations, with the CME FedWatch tool now projecting a 90% probability of the Federal Reserve maintaining interest rates at its upcoming meeting on January 29, 2025. The likelihood of a rate cut was reduced to just 10%. Consequently, the yield on the 10-year US Treasury note declined from a high of 4.60% on Thursday to 4.50%. In the UK, the Bank of England held its key borrowing rate steady at 4.75%, as widely anticipated. However, the decision was not unanimous, with three policymakers voting for a rate cut despite recent inflation acceleration.

Meanwhile, UK retail sales data disappointed, with monthly sales rising by just 0.2%, falling short of the expected 0.5% increase and recovering only slightly from a 0.7% decline in October. Year-on-year growth also weakened, coming in at 0.5% compared to expectations of 0.8% and a significant drop from the previously reported 2%. Despite these mixed signals, the pound managed to avoid fresh short-term lows and held above the 1.2510 support level, indicating a degree of resilience. However, technical indicators remained bearish, with a potential crossover between the 50- and 200-day moving averages raising concerns for traders. A sustained break below the 1.2500 level could trigger a pullback towards the 1.2430 support area. Further downside risks could see the pair decline towards April's lows around 1.2300, with a potential extension to the 1.2170-1.2200 range if support levels are breached.