GBP to USD Forecast: US Consumer Inflation Expectations in Focus

Highlights

• The GBP/USD declined by 0.32% on Friday, ending the session at $1.25469.
• Michigan Consumer Sentiment and the US Jobs Report left the GBP/USD in negative territory.
• On Monday, US consumer inflation expectations will be a focal point.

The Friday GBP/USD Overview

On Friday, the GBP/USD declined by 0.32%. After a 0.22% gain on Thursday, the GBP/USD ended the day at $1.25469. The GBP/USD rose to a Friday high of $1.26014 before falling to a low of $1.25021.

A Big Week for the Pound

In the week ahead, UK economic indicators could further influence sentiment toward the Bank of England’s policy goals. UK wage growth and unemployment numbers could fuel bets on BoE rate cut discussions.

Wage growth remains a bugbear for the BoE. However, softer-than-expected growth numbers could convince Bank of England Governor Andrew Bailey to consider discussions.

Softer wage growth could impact disposable income and spending plans. A pullback in consumer spending would dampen demand-driven inflation.

Economists forecast average earnings (incl. bonuses) to increase by 7.3% year-over-year, three months to October. In the third quarter, average earnings (incl. bonuses) were up 7.9%.

Last week, BoE Gov. Bailey acknowledged risks to financial stability. Concerns about financial stability amid weaker labor market conditions could incentivize the BoE to take a less hawkish rate path in H1 2024.

There are no UK economic indicators to consider during the Monday session.

US Consumer Inflation Expectations in the Spotlight

On Monday, US Consumer Inflation Expectations will draw investor interest. Hotter-than-expected numbers could support falling bets on a March Fed rate cut. A hawkish Fed rate path impacts borrowing costs and disposable income. Downward trends in disposable income could affect consumer spending and dampen demand-driven inflationary pressures.

Economists forecast Consumer Inflation Expectations to rise from 3.6% to 3.8% in November.

Short-Term Forecast

Near-term price trends for the GBP/USD pair will hinge on the UK Labor Market Overview, the US CPI Report, and central bank forward guidance. A pickup in US inflationary pressures could force the Fed to signal a more hawkish rate path to curb spending. Softer UK labor market numbers could kickstart BoE discussions on rate cuts.

GBP to USD Price Action

Daily Chart

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

A breakout from the $1.26000 handle would bring the $1.27 handle into view.

US Consumer Inflation Expectations will be the focal point on Monday.

However, a 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 53.02 indicates a GBP/USD move 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, sending 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 into play.

The 14-period RSI on the 4-hour Chart at 33.96 indicates a GBP/USD fall to the $1.25000 handle before entering oversold territory.