GBP to USD Forecast: UK GDP Numbers and the Fed in the Spotlight

Highlights

• The GBP/USD rose by 0.06% on Tuesday, ending the session at $1.25624.
• On Wednesday, the GDP Monthly Estimate Report for October could influence the Bank of England rate path.
• However, the main focal points will include the FOMC economic projections and the FOMC press conference.

The Tuesday GBP/USD Overview

On Tuesday, the GBP/USD rose by 0.06%. After a 0.06% gain on Monday, the GBP/USD ended the day at $1.25624. The GBP/USD rose to a Tuesday high of $1.26151 before falling to a low of $1.25181.

UK GDP Monthly Estimate in Focus

On Wednesday, the UK GDP Monthly Estimate Report will garner investor interest. After the softer-than-expected UK wage growth figures, the UK macroeconomic environment could influence bets on a Bank of England rate cut.

An unexpected contraction in the UK economy may pressure the bank to bring forward rate cut discussions. Softer wage growth could affect consumer spending and dampen demand-driven inflation. Private consumption contributes over 60% to the UK economy. A weak demand outlook would further affect the economy and spending.

Economists forecast the UK economy to stall in October after expanding by 0.2% in September. Beyond the headline figure, investors should consider the performances of the main contributors, including services and manufacturing production.

US Producer Prices and the Fed in Focus

On Wednesday, US producer prices will draw investor interest. Producer prices can be a leading indicator of US consumer price inflation. An improving demand environment would allow producers to increase prices and pass the price increases on to consumers. An upward trend in producer prices could signal a pickup in demand-driven inflation, requiring a hawkish Fed rate path.

Economists forecast US producer prices to increase by 1.0% in November vs. 1.3% in October.

While the numbers will draw interest, the main event will be the Fed interest rate decision and press conference. An upward revision to the Fed interest rate trajectory could fuel buyer demand for the US dollar. However, Fed Chair Powell must dismiss near-term discussions on rate cuts to fuel a US dollar rally.

Short-Term Forecast

Near-term price trends for the GBP could hinge on the UK GDP Report, the Fed, and the BoE. Weaker-than-expected UK GDP numbers and a hawkish Fed could significantly impact the appetite for the Pound.

GBP to USD Price Action

Daily Chart

The GBP/USD held above the 50-day and 200-day EMAs, sending bullish price signals.

A GBP/USD return to the $1.26000 handle would give the bulls a run at $1.27 and the $1.28013 resistance level.

The UK GDP report and the Fed are focal points on Wednesday.

However, a GBP/USD drop below the $1.25000 handle would give the bears a run at the 50-day EMA and the $1.24410 support level.

The 14-period daily RSI reading of 53.96 suggests a GBP/USD return to the $1.27 handle before entering overbought territory.

4-Hourly Chart

The GBP/USD remained below the 50-day EMA while sitting above the 200-day EMA, affirming bearish near-term but bullish longer-term price signals.

A GBP/USD break above the 50-day EMA would give the bulls a run at the $1.27 handle.

However, a drop below the $1.25000 handle would bring the 200-day EMA and the $1.24410 support level.

The 14-period RSI on the 4-hour Chart at 44.63 indicates a GBP/USD drop to the 200-day EMA before entering oversold territory.