GBP to USD Forecasts: UK Stats and BoE Policy Chatter to Test $1.175

It is a busy day for the GBP/USD, with prelim November private sector PMIs in focus this morning.

After the grim OBR growth forecasts for 2023, today’s PMIs will give the markets a sense of what’s to come at the turn of the year. Economists have forecast the all-important services PMI to fall from 48.8 to 48.0 and for the manufacturing PMI to decline from 46.2 to 45.8.

While the headline numbers will influence, the sub-components, including input and output price and new orders, will also draw interest. Weaker-than-expect numbers would support the OBR forecasts.

Following today’s stats, Bank of England chatter will draw interest. Bank of England Chief Economist Huw Pill will speak at the Beesley Lecture Series on returning inflation to target. In recent speeches, the Bank’s Chief Economist has stood his ground on the need to lift rates further to bring inflation to target.

Earlier this month, Huw Pill reiterated the need for the Bank to raise rates to tighten monetary policy. Previously, Huw Pill had also pointed out that ‘the slowdown in the economy is what we anticipate is required to contain domestic inflationary pressures to achieve our targets.’

GBP/USD Price Action

At the time of writing, the Pound was down 0.08% to $1.18744. A mixed start to the day saw the GBP/USD rise to an early high of $1.19094 before falling to a low of $1.18725.

Technical Indicators

The Pound needs to avoid the $1.1866 pivot to target the First Major Resistance Level (R1) at $1.1921. Risk-on sentiment and hawkish MPC member chatter would support a bullish session.

In the case of an extended rally, the GBP/USD would likely take a run at the Second Major Resistance Level (R2) at $1.1958 and resistance at $1.20. The Third Major Resistance Level (R3) sits at $1.2051.

A fall through the pivot would bring the First Major Support Level (S1) at $1.1828 into play. However, barring a risk-off-fueled pullback, the GBP/USD should avoid sub-$1.1750. The Second Major Support Level (S2) at $1.1773 should limit the downside.

The Third Major Support Level (S3) sits at $1.1680.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The GBP/USD sits above the 50-day EMA, currently at $1.17976. The 50-day EMA widened from the 100-day EMA, with the 100-day EMA pulling away from the 200-day EMA, delivering bullish signals.

A hold above the 50-day EMA ($1.17976) would support a breakout from R1 ($1.1921) to target R2 ($1.1958) and $1.20. However, a fall through the 50-day EMA ($1.17976) would give the bears a run at sub-$1.18. The 200-day EMA sits at $1.15677.

The US Session

It is a busy day ahead on the US economic calendar. Prelim November private sector PMIs, consumer sentiment, jobless claims, and core durable goods will be in focus. Barring a spike in jobless claims, expect the services PMI and consumer sentiment to have the most impact on the dollar.

Late in the session, the FOMC meeting minutes will also draw attention. FOMC members have delivered mixed signals, leaving the markets uncertain about the December move. While the minutes will provide some guidance, the latest stats continue supporting another 75-basis point rate hike.

Today’s economic indicators and FOMC member chatter could provide more clarity. According to the FedWatch Tool, the probability of a December 75-basis point rate hike stood at 24.2% this morning.