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This week's central bank announcements, led by the Fed and Bank of England announcements, will shape the future of GBP/USD's 2024 close and give a glimpse into what 2025 will look like. Especially, with Trump taking over the US economy. Ahead of this week's key events, GBP/USD is trading lower around the 1.2615 support level, near its lowest in over two weeks.
The Bank of England Faces Rising Inflation Expectations
Although the Bank of England wants to combat the slowdown of the British economy by cutting interest rates, rising inflation will prevent it from doing so. In this regard, the latest Bank of England/Ipsos inflation expectations survey reveals a rise in UK public inflation expectations, with average expectations for the coming year rising to 3%, up from 2.7% in August 2024. It also shows an increase in inflation expectations over the next 12 months to 2.8% from 2.6%. According to the announcement, long-term inflation expectations, measured over a five-year horizon, have risen to an average of 3.4%, compared to 3.2% in the previous survey. Consequently, these results reflect growing public concerns about inflationary pressures in Britain.
Top Forex Brokers1 Get Started 74% of retail CFD accounts lose money What to Expect from the Bank of England Announcement?
Overall, this is a significant development for policymakers at the Bank of England, ahead of its decision this week. Accordingly, inflation expectations are of paramount importance in driving actual inflation outcomes: If people expect inflation to rise in the future, they may accelerate their spending to avoid paying higher prices later. This increased demand could in turn lead to higher prices, creating a vicious cycle of inflation. The inflation expectations data comes on the day that the UK economy was announced to have contracted by 0.1% for the second consecutive month, confirming that the economy has lost momentum rapidly from the growth mentioned above in the first half of the year. This confirms market expectations that the bank will proceed cautiously in 2025, cutting interest rates on three to four occasions Tips:
The price of the pound against the dollar may stabilize around its current path until the reaction to the results of important economic data and announcements from global central banks, so caution is required
EURUSD Chart by TradingViewThe Pound is Affected by the Contraction of the British Economy
According to the platforms of licensed trading companies. The price of the pound has been subjected to selling pressure against the rest of the other major currencies following the announcement of the contraction of the British economy for the second month in a row. According to the Office for National Statistics, the UK's gross domestic product fell by 0.1%, and according to the announcement, British industrial production and construction output fell by 0.6% and 0.4%, respectively, while the services sector failed to grow.
On a quarterly basis, UK GDP grew slightly by 0.1% compared to the previous 3-month period. GDP increased by 1.3% over the year compared to market expectations of 1.6%. Economists commented on the announced figures that budget uncertainty has weighed on demand and sentiment. Furthermore, the survey data paints a more pessimistic picture for the fourth quarter than growth models from the Office for Budget Responsibility and the Bank of England suggest. At the same time, the fourth quarter could see a weaker pace of growth, as companies deal with the higher tax burden announced in the budget as well as heightened geopolitical uncertainty Analysis for the GBP/USD pair today:
According to the performance of the GBP/USD price on the daily chart, the general trend is down and is getting stronger. Concurrently, Forex traders are looking forward to moving towards the psychological support level of 1.2500 now. Technically, the direction of the Relative Strength Index is still down and has room to move before reaching oversold levels. Moreover, the MACD is turning higher and will not lack strength. In contrast, and in the same time frame, there will be no initial break of the current downtrend without returning to the resistance level of 1.2830 first.
Decisively, the GBP/USD pair will be affected this week by the announcement of both the Bank of England and the US Federal Reserve on the scheduled interest rates and the banks' policy statement will be of interest to investors and analysts. However, the interaction will be with the readings of the manufacturing and services purchasing managers' indices. Also, the British inflation and employment figures. In addition to the announcement of the US retail sales figures and the GDP growth readings, then the US inflation reading preferred by the Federal Reserve - the Personal Consumption Expenditures Price Index - it is truly a trading and fateful week for the GBP/USD pair.
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