The recent improvement in morale that the US Central Bank will stop tightening its policy during the year 2024 weakened the price of the dollar and gave the price of the pound against the US dollar GBP/USD positive momentum to move higher with recent gains that reached the resistance level of 1.2795. obviously, this is its highest level in four months, and it stabilizes around the level of 1.2702 at the time of writing the analysis. The weak results of British economic data had a negative impact on the recent gains of the sterling.
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What are the expectations of the British pound for the year 2024?
In this regard, Goldman Sachs now expects the pound to rise to a peak of 1.35 against the US dollar by the end of 2024. However, HSBC bank analysts expect the GBP/US dollar exchange rate to weaken to 1.18 by the third quarter of 2024. Recently, the trading of GBP/USD was volatile during the week with net gains above 1.2700 resistance as the dollar lost strength.
Moreover, the recent British data has sparked a further shift in the Bank of England's interest rate expectations. Accordingly, the British pound gave up its relative strength, but was saved by a further decline in the price of the US dollar amid expectations of deeper cuts in US interest rates. Strong risk conditions also helped support the British currency in global markets. Officially, it was announced that the headline inflation rate in the United Kingdom fell more sharply than expected to 3.9% for November from 4.6% previously and much lower than the consensus forecast of 4.4%. Also, the base rate fell to 5.1% from 5.7% and below expectations of 5.5%. In reaction, financial markets have moved to price interest rate cuts more aggressively with the first move now seen in May and interest rates falling below 4.00% at the end of next year.
According to MUFG Bank, "it was previously thought that the risks of continued inflation were greater in the UK and would continue to make the Bank of England relatively more cautious about cutting rates. However, there is now strong evidence that inflation in the UK is also falling just as quickly as in the US and the euro area albeit with a lag." The bank added, "The positive developments reinforce market expectations that the main inflation rate could fall back to the Bank of England's target of 2.0% in the first half of next year, paving the way for the Bank of England to start cutting rates from the second quarter. While this is in line with our current expectations for Bank of England policy, the faster fall in inflation poses downside risks to our sterling outlook in the near term."
On the other hand, British retail sales data were stronger than expected the GDP numbers for the second and third quarters were revised less, which increased talk of a technical recession. According to BNP Paribas, “We expect that as the economy slows, Britain will eventually enter a period of stagflation, where lower growth will eventually stimulate a greater reduction in price pressures.”
On the American side, The US personal consumption expenditures price index decreased by 0.1% for the month of November compared to expectations of no change during the month, with the increase slowing on an annual basis to 2.8% from 2.9%. also, Core prices rose 0.1% month-on-month, and October's increase was also revised to 0.1% from 0.2%. Now, markets are pricing in significant US interest rate cuts in 2024 with over 70% probability of interest rates being cut to 3.75% or 4.00% by the end of the year, and two rate cuts are now being priced in by May.
For its part, Goldman Sachs now expects five cuts in US interest rates in 2024, which will lead to a weakening of the dollar price. Furthermore, it now expects the price of the British pound/US dollar pair to rise to 1.35 at the end of 2024.
GBPUSD Expectations and Analysis Today:
According to the performance on the daily chart below, the upward shift in the GBP/USD currency pair is still underway. Technically, the stability above the resistance 1.2700 still provides the bulls with opportunities for further movement upward, and control may culminate in moving towards the resistance levels of 1.2775 and then 1.2850, respectively. Furthermore, that is sufficient to push the indicators. Aim for overbought levels, and the event will occur if it moves towards the psychological resistance 1.3000. On the other hand, and over the same time period, the move towards the support level of 1.2580 is a threat to the bulls’ current control over the direction of the pound against the dollar. Important and influential data are not expected today, whether from Britain or the United States.
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