GBP/USD Daily Forecast – UK CPI Holds Steady at 1.5%

Annual UK CPI Unchanged Ahead of Thursday’s BoE Meeting

The consumer price index rose 1.5% in the year to November, unchanged from the prior reading. The index was rising in the first half of the year but has been declining since hitting a high of 2.1% in July.

The figure is below the Bank of England’s 2% target although it does not seem likely that policymakers will act when they meet tomorrow.

The BoE surprised markets last time around when two policy members voted to cut interest rates unexpectedly. Analysts are expecting the same two members to vote for easing measures once again on Thursday.

Thursday’s meeting should shed some light on where the bank stands following last week’s election results. For some time, most analysts saw a positive progression with the odds of a no-deal Brexit fading away. This view changed this week after Boris Johnson took action to reintroduce fears of a no-deal exit.

Johnson announced that he intends to change the law so that Brexit will happen as scheduled and that no extensions will be made. As it stands, the UK is set to leave the EU at the end of January. At that stage, there will be a transition period which will last until the end of the year. The purpose of this period is to negotiate a trade agreement. If a trade deal cannot be agreed upon in the transition period, the UK could leave without a deal under Johnson’s latest move.

Technical Analysis

GBP/USD has broken below a fairly significant support area, however, little follow-through is seen at this point. The support area consists of a rising trendline and a horizontal level.

The trendline is drawn connecting the October low with the lows posted earlier this month. The exchange rate respected this trendline last week, bouncing from it on a dip during the elections.

In addition to the rising trendline, a horizontal level at 1.3145 is in play. And lastly, the 200-week moving average is also offering support. GBP/USD scaled  this indicator last week and closed above it for the first time in five years.

The pair will need to climb back above 1.3145 in the session ahead to negate some of the recent downward momentum. If it fails to do so, there might be an acceleration in the downside moment. In such a scenario, the 1.3000 handle stands out as the next area of major support for the pair.

Bottom Line

• Downside momentum in GBP/USD has subsided, at least for now, after an early week tumble.
• Annual CPI was reported to rise by 1.5%, unchanged from the prior month.
• The Bank of England meets on Thursday.