The British Pound abruptly reversed course and snapped weekly gains earlier today, after the latest CPI print from the UK for the month of November showcased a larger than expected cooldown. Headline inflation undershot, not only markets’ 3.5% expectation but also the BoE’s respective 3.4% forecast and settled at the 3.2% level.
Inflation in the UK has moderated in recent months and today’s update indicated that a broader deceleration of price pressures is currently the theme at play, which thus entices BoE policymakers to ponder whether it is appropriate to reduce rates further.
Earlier in the week, labour market data showed the unemployment rate rising to its highest level since 2021 and ramped up fears of an imminent downturn in employment conditions. Meanwhile, GDP figures released last week indicated that the UK economy contracted for a second consecutive month in October, showcasing deeper systemic problems are emerging from the prolongment of the BoE’s tightening campaign.
BoE policymakers will convene tomorrow Thursday and decide at their final policy meeting of 2025, whether to keep rates steady or go forth with a 25bps rate reduction. Currently, money market participants assign a 91% chance that the central bank will go ahead with a 25bps rate cut, given the looser inflationary pressures and drag down the overnight borrowing rate to 3.75% and extend the easing cycle.
Should the committee decisively vote in favour of looser financial conditions and pivot back to cutting rates, after two meeting of pauses, then we may reasonably expect to see the Pound lose further ground and start to give back the ground gained in December.
Technical Analysis
GBPUSD Chart – Cooler than expected CPI print presses the Pound lower
Resistance: 1.3450 (R1), 1.3650 (R2), 1.3800 (R3)
Support: 1.3200 (S1), 1.3000 (S2), 1.2860 (S3)